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Alpha Company owns 80 percent of the voting stock of Beta Company. Alpha and Beta reported...

Alpha Company owns 80 percent of the voting stock of Beta Company. Alpha and Beta reported the following account information from their year-end separate financial records: Alpha Beta Inventory $95,000 $88,000 Sales Revenue 800,000 300,000 Cost of Goods Sold 600,000 180,000 During the current year, Alpha sold inventory to Beta for $100,000. As of year-end, Beta had resold only 60 percent of these intra-entity purchases. Alpha sells inventory to Beta at the same markup it uses for all of its customers. Problem 5-5 (Static) (LO 5-2, 5-3) What is the total for consolidated inventory? Multiple Choice $173,000 $175,000 $143,000 $183,000

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Answer #1

% profits Alpha charge to other customers = ($800,000 - $600,000) / $800,000 = 25% of sales

Stock held at year end by beta from the purchases made from Alpha = $100,000 X 40%

=$40,000

Profit involved in stock held by beta from the purchases made from Alpha = $40,000 X 25%

= $10,000

So Value of stock of Beta = $88,000 - $10,000 = $78,000

Hence, Total for consolidated inventory = $95,000 + $78,000 = $173,000

Option A is correct.

For any clarification, please comment. Kindly Up Vote!

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