inventories

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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23. Peter acquired 80% of the outstanding ordinary shares of Simon on January 2, 20x1.

During 20x1, Peter sold inventory to Simon for P125,000 with 25% gross profit based on cost, 20% of this inventory remained unsold at the end of the year. On the other hand, Simon sold inventory to Peter for P50,000 with 40% gross profit rate base on sales, 90% of this inventory were sold to outsiders. The remaining inventories of Peter and Simon were sold in year 20x2.

On January 5, 20x2, Peter sold inventory to Simon for P150,000 with gross profit rate of 20% based on sales. 70% of these inventories were sold to outsiders while the remaining were sold in 20x3. On the other hand, Simon sold inventory to Peter for P30,000 with gross profit based on cost of 20%, ¾ of this remained unsold at the end of the year.

On December 31, 20x2, Peter and Simon reported the following:

Peter                                     Simon

Sales                                                                      800,000                                500,000

Cost of Sales                                                       (350,000)                             (200,000)

Gross Profit                                                        450,000                                300,000

Operating expenses                                        (50,000)                               (20,000)

Net Income                                                         400,000                                280,000

Dividend Income from Simon                      75,000

Total Net Income                                             475,000                                280,000

What is the amount of consolidated net income for 20x2?

  1. 676,00
  2. 678,250
  3. 749,250
  4. 674,250
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