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

1. If the sale referred to above was a downstream sale, the total sales revenue reported in the consolidated income statement for 20X4 would be:

Select one:

a.

$875,000

b.

$860,000

c.

$920,000

d.

$980,000

e.

$965,000

2. If the sale referred to above was a downstream sale, by what amount must Inventory on the consolidated balance sheet be reduced to reflect the correct balance as of the end of 20X4?

Select one:

a.

$2,700

b.

$15,000

c.

$9,000

d.

$5,000

e.

$-0-