Chapter_5_day_1_solutions

Chapter_5_day_1_solutions - Answers to Problems 1. C 2. B...

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Answers to Problems 1. C 2. B Inventory remaining \$100,000 × 50% = \$50,000 Unrealized gross profit (based on Lee's markup as the seller) \$50,000 × 40% = \$20,000. The ownership percentage has no impact on this computation. 3. A 4. C UNREALIZED GROSS PROFIT, 12/31/09 Intercompany Gross profit (\$100,000 – \$75,000) . ......................... \$25,000 Inventory Remaining at Year's End . .................................... 16% Unrealized Intercompany Gross profit, 12/31/09 . .............. \$4,000 UNREALIZED GROSS PROFIT, 12/31/10 Intercompany Gross profit (\$120,000 – \$96,000) . .............. \$24,000 Inventory Remaining at Year's End . .................................... 35% Unrealized Intercompany Gross profit, 12/31/10 . .............. \$8,400 CONSOLIDATED COST OF GOODS SOLD Parent balance . ................................................................ \$380,000 Subsidiary Balance . ......................................................... 210,000 Remove Intercompany Transfer . .................................... (120,000) Recognize 2009 Deferred Gross profit . .................................... (4,000) Defer 2010 Unrealized Gross profit . .......................................... 8,400 Cost of Goods Sold . ......................................................................... \$474,400 5. A Intercompany sales and purchases of \$100,000 must be eliminated. Additionally, an unrealized gross profit of \$10,000 must be removed from ending inventory based on a markup of 25 percent (\$200,000 gross profit/ \$800,000 sales) which is multiplied by the \$40,000 ending balance. This deferral increases cost of goods sold because ending inventory is a negative component of that computation. Thus, cost of goods sold for

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Chapter_5_day_1_solutions - Answers to Problems 1. C 2. B...

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