Question
Salli Corporation regularly purchases merchandise from their 90% owner, Playtime Corporation. Playtime purchased the 90% interest at a cost equal to 90% of the book
Salli Corporation regularly purchases merchandise from their 90% owner, Playtime Corporation. Playtime purchased the 90% interest at a cost equal to 90% of the book value of Salli's net assets. At the time of acquisition, the book values and fair values of Salli's assets and liabilities were equal. Playtime makes their sales to Salli at 120% of cost. In 2014, Salli reported net income of $460,000, and made purchases totaling $172,000 from Playtime. Although Salli had no inventory on hand at the beginning of 2014 that they had purchased from Playtime, at year end, they had $51,600 of this merchandise in inventory. Part 1: Determine the unrealized profit in Salli's inventory at December 31, 2014. Part 2: Compute Playtime's income from Salli for 2014.
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