Question

Early Company owns 100 percent of the outstanding shares of Late. During the current year, Early sold inventory costing $90,000 to Late for $100,000. Although this inventory has now been sold to an outside party, Late has not repaid Early. At the balance sheet date, Early has total current assets of $800,000 whereas Late has total current assets of $500,000. Assume that there were no allocations established at the date of acquisition. What is the total amount reported on the consolidated balance sheet for current assets?

A) $1,190,000

B) $1,200,000

C) $1,210,000

D) $1,300,000

Answer 1

Answer : B) $1,200,000

Explanation :

Total amount of  current assets on the consolidated balance sheet

= Early 's current assets + Late's current assets - Accounts Recivable balance in the books of Early for goods sold to Late = $800,000 + $500,000 - $100,000 = $1,200,000

Note : Since the inventory has been sold to an outside party it means it already has been deducted from current assets of Late at the balance sheet date.Thus no adjustment required for inventory in consolidated balance sheet as it is already eliminated from the current assets of Late at the balance sheet date.