Parker Inc. (Parker) owns 70% of Queen Ltd. (Queen). Parker and Queen both have December 31st year ends. On January 1, 2022, Queen had inventory in its warehouse which was purchased from Parker for $12,000 in 2021. This inventory was sold to an outside party during 2022. During 2022, Parker sold inventory to Queen for $50,000. 40% remained in Queen's warehouse at year end. Also, during 2022, Queen sold inventory to Parker for $25,000. 70% of this inventory remained in Parker's warehouse at year end. Both companies are subject to a tax rate of 40%. The gross profit percentage on sales is 30% for both companies. Parker uses the cost method to account for its Investment in Queen. The inventories of both companies as at December 31, 2022 were all sold to outsiders during 2023. There were no intercompany transactions during 2023. Prepare a schedule showing the realized and unrealized profits resulting from upstream transactions (i.e., Queen selling to Parker) for 2022 and 2023. Your schedule should include both pre-tax and after-tax amounts.
Parker Inc. (Parker) owns 70% of Queen Ltd. (Queen). Parker and Queen both have December 31st year ends. On January 1, 2022, Queen had inventory in its warehouse which was purchased from Parker for $12,000 in 2021. This inventory was sold to an outside party during 2022. During 2022, Parker sold inventory to Queen for $50,000. 40% remained in Queen's warehouse at year end. Also, during 2022, Queen sold inventory to Parker for $25,000. 70% of this inventory remained in Parker's warehouse at year end. Both companies are subject to a tax rate of 40%. The gross profit percentage on sales is 30% for both companies. Parker uses the cost method to account for its Investment in Queen. The inventories of both companies as at December 31, 2022 were all sold to outsiders during 2023. There were no intercompany transactions during 2023.
Prepare a schedule showing the realized and unrealized profits resulting from upstream transactions (i.e., Queen selling to Parker) for 2022 and 2023. Your schedule should include both pre-tax and after-tax amounts.
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