eleuthromania
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Joined: 20 Mar 2016
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Posts: 3
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| Posted: 27 Mar 2016 at 23:13 | IP Logged
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Sorry but isn't the carry amount of the inventory purchased just the sales price? Which, means it equals the intercompany sales, which in this case would be $32,000. I know I'm way off but can someone explain to me why?
I think I've finally understand, but in a different way. Basically when we're asked to find the carrying value of the purchased inventory, we're looking for the ending inventory amount of goods purchased from Pard. From the I/S, we know that Pard sold inventory with a cost of $150,000 for $200,000. This gives us a GP of $50,000. We already that $3,000 is the intercompany profit in Spin's ending inventory from the B/S. In order to get the allocation percentage, we divide 3,000/50,000=0.06. Then, we multiply this by the cost of goods available, which is the amount of purchases in this case, $200,000x0.06=$12,000.
To conclude:
Beginning inventory: 0
Purchases (sales price): 200,000
Cost of goods available: 200,000
Ending inventory (answer): 12,000(6%)
Cost of goods sold: 188,000(94%)
Intercomp. profit in
Spin's COGS ($50,000x94%): 47,000
Intercomp. profit in
Spin's end. inv. ($50,000x6%): 3,000
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Topic: Interco elimination question
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