Question
Parent Corporation owns 80% of Sub Inc.'s common stock that was purchased at its underlying book value. At the time of purchase, the book value
Parent Corporation owns 80% of Sub Inc.'s common stock that was purchased at its underlying book value. At the time of purchase, the book value and fair value of Sub's net assets were equal. During 20X4, one company sold inventory to the other company for $60,000 which cost the transferor $45,000. As of the end of 20X4, one-third of the inventory was unsold. In 20X5, the remaining inventory was resold outside the consolidated entity. The two companies report the following information for 20X4: 20X4 Selected Data: Parent Sub Sales Revenue $600,000 $320,000 Cost of Goods Sold 320,000 155,000 Other Expenses 100,000 89,000 Separate Net Incomes $180,000 $76,000 Dividends Paid 19,000 0
For 20X4, consolidated net income will be what amount if the intercompany sale was downstream? Select one: a. $171,000 b. $165,000 c. $251,000 d. $261,000 e. $256,000
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