During 2020, X Company, which is 90% owned by Y Company, sold inventory to its parent for $1,000,000 at a 25% mark-up on cost and 30% of these goods remained in Ys inventory at the year end. Both companies enjoy a tax rate of 40% and have fiscal year ends on December 31. Inventory turns frequently during the course of a year. What is the before tax profit in the ending inventory in 2020?

1. A deduction of $75,000
2. A deduction of $60,000
3. A deduction of $45,000
4. A deduction of $36,000.

The X Company acquired 100% of the shares of the Y Company. X Company paid lawyers and appraisers for assistance in negotiating and financing this transaction. How should X account for these costs on its separate entity financial statements?

Deferred charges

Professional fees expense

Additional costs of the investment in Y

Goodwill

4. What increase to consolidated income in 2021 is caused by the above transaction during 2020?

1. An addition of $108,000
2. An addition of $60,000
3. An addition of $36,000
4. An addition of $32,400.