Rhett Corporation acquired 80 percent of Ennis Corporation's common stock at underlying book value. The
companies reported the following information for the years 2007 and 2008.
During 2007, one company sold inventory to the other for $100,000. The inventory originally cost
the transferring affiliate $80,000. As of the end of 2007, 30 percent of the inventory exchanged in the
intercompany transaction remained in the purchasing affiliate's ending inventory. In 2008, the remaining
inventory was sold to unrelated parties for $50,000.
Consider the information given above. If the intercompany sale was downstream, by what amount must
inventory be reduced in the consolidation workpaper to reflect the correct balance in the consolidated
balance sheet at December 31, 2007?
A. $ 0.
B. $ 6,000.
Consider the information given above. If the intercompany sale was downstream, 2007 consolidated net
income should be:
Consider the information given above. If the intercompany sale was upstream, total revenue reported in the
consolidated income statement for 2007 should be: