Question
Panama Company owns a 75% interest in Samoa Corporation. The acquisition was January 2, 2009, when Samoas capital stock was $75,000 and retained earnings was
Panama Company owns a 75% interest in Samoa Corporation. The acquisition was January 2, 2009, when Samoas capital stock was $75,000 and retained earnings was $50,000. Panamas cost was $150,000. It was determined that any difference between implied and book value was attributable to Samoas land. In 2013, Samoa had beginning retained earnings of $90,000 and issued dividends of $5,000. Panama uses the cost method to account for Samoa.
In 2013, Samoa purchased merchandise from Panama, with Panamas cost of $20,000 and markup of 50 percent on cost. At the end of the year, Samoa still had $9,000 of the merchandise in its inventory.
A. Prepare all the elimination entries necessary as of December 31, 2013
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Assume that Samoa discovered that a new product recent introduced decreased the value of its inventory significantly so it wrote down the inventory from the purchase above to $7,000
B. Calculate the unrealized profit in ending inventory for 2013
C. Prepare the workpaper entry that reflects Ss write down of inventory
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