Hide Corporation is a wholly owned subsidiary of Seek Company. During 2015, Hide sold all of its production to Seek Company for $400,000, a price that includes a 25% gross profit. 2015 was the first year that such intercompany sales were made. By year-end, Seek sold, for $416,000, 80% of the goods it had purchased. The balance of the intercompany goods, $80,000, remained in the ending inventory and was adjusted to a lower fair value of $70,000. The adjustment was a charge to the cost of goods sold.1. Determine the gross profit on sales recorded by both companies.2. Determine the gross profit to be shown on the consolidated income statement.
Hide Corporation is a wholly owned subsidiary of Seek Company. During 2015, Hide sold all of its production to Seek Company for $400,000, a price that includes a 25% gross profit. 2015 was the first year that such intercompany sales were made. By year-end, Seek sold, for $416,000, 80% of the goods it had purchased. The balance of the intercompany goods, $80,000, remained in the ending inventory and was adjusted to a lower fair value of $70,000. The adjustment was a charge to the cost of goods sold.1. Determine the gross profit on sales recorded by both companies.2. Determine the gross profit to be shown on the consolidated income statement.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Hide Corporation is a wholly owned subsidiary of Seek Company. During 2015, Hide sold all of its production to Seek Company for $400,000, a price that includes a 25% gross profit. 2015 was the first year that such intercompany sales were made. By year-end, Seek sold, for $416,000, 80% of the goods it had purchased. The balance of the intercompany goods, $80,000, remained in the ending inventory and was adjusted to a lower fair value of $70,000. The adjustment was a charge to the cost of goods sold.
1. Determine the gross profit on sales recorded by both companies.
2. Determine the gross profit to be shown on the consolidated income statement.
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Transcribed Image Text:S Ltd(a partially owned subsidiary), sold inventories for the first time to its parent, P Itd during the reporting period ended 28 February 2015, at a profit mark up of 25% on cost
price. On 28 February 2015 inventories to the value of R100 000(at cost to P Ltd) were still on hand. The company tax rate is 28%.
Total sales from S Ltd to P Ltd for the current reporting period amounted to R200 000.
Which is the correct tax implication on unrealized profit?
Select one:
O a. Dr Deferred tax (S)SFP R5 600, Cr Income Tax expense (S) P/L R5 600
O b. Dr Deferred tax (S) SFP R7 000, Cr Income tax expense (S) P/L R 7 000
O c Dr Income tax expense(S) P/L R5 600, Cr Deferred tax (5) SFP R5 600
O d. Dr Income tax expense (S) P/L R2 800, Cr Deferred tax (S) R2 800
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