Question
Power Co. is a manufacturer and Slack Co., its 100% - owned subsidiary, is a retailer. The companies are vertically integrated. Thus, Slack purchases all
Power Co. is a manufacturer and Slack Co., its 100% - owned subsidiary, is a retailer. The companies are vertically integrated. Thus, Slack purchases all of its inventory from Power. On January 1, Slack's inventory was $30,000. For the Year ended December 31, Its purchases were $150,000, and its cost of sales was $166,500. Power's sales to flack reflect a 50% gross profit on sales. Slack then resells the goods to outside entities at a 40% gross profit on sales. At what amount should be intercompany inventory purchase be reported in the consolidated balance sheet at December 31?
a) $16,500
b) $9,000
c) $13,500
d)$6,750
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