Assume on May 15, 2019, a parent company purchased a 75% interest in a subsidiary’s voting common stock. During the year ended December 31, 2022, the subsidiary sold merchandise to the parent for $972,000 Before consolidation, the parent and subsidiary earn the same profits on intercompany sales as they earn on sales to unaffiliated customers. The parent’s gross profit percentage is 35% and the subsidiary’s is 30%. On December 31, 2022, 40% of this merchandise was in the parent’s ending inventory. What amount of intercompany profit in ending inventory must be deferred in preparation of the December 31, 2022 consolidated financial statements? Select one: a. $388,800 b. $116,640 c. $87,480 d. $136,080
Deferred intercompany inventory profits
Assume on May 15, 2019, a parent company purchased a 75% interest in a subsidiary’s voting common stock. During the year ended December 31, 2022, the subsidiary sold merchandise to the parent for $972,000 Before consolidation, the parent and subsidiary earn the same profits on intercompany sales as they earn on sales to unaffiliated customers. The parent’s gross profit percentage is 35% and the subsidiary’s is 30%. On December 31, 2022, 40% of this merchandise was in the parent’s ending inventory. What amount of intercompany profit in ending inventory must be deferred in preparation of the December 31, 2022 consolidated financial statements?
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