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bala
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Joined: 09 Jan 2009
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Posted: 16 Sep 2010 at 00:40 \| IP Logged

Ahm Corp. owns 90% of Bee Corp.'s common stock and 80% of Cee Corp.'s common stock. The remaining common shares of Bee and Cee are owned by their respective employees. Bee sells exclusively to Cee, Cee buys exclusively from Bee, and Cee sells exclusively to unrelated companies. Selected 1991 information for Bee and Cee follows:

Bee Corp. Cee Corp.

Sales $130,000 $91,000

Cost of sales & nbsp; 100,000 ; 65,000

Beginning inventory None None

Ending inventory None 65,000

What amount should be reported as gross profit in Bee and Cee's combined income statement for the year ended December 31, 1991?

The answer is $ 41000

Could someone please tell me how to solve this one. The solution provided by Becker doesn't make sense to me!

Im getting most of the qns from this section wrong. really worried about this topic. is this a heavily tested item? appreciate any inputs.

Thanks!

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Aesop
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Joined: 23 Feb 2010
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Posted: 16 Sep 2010 at 00:56 \| IP Logged

Wow glad I wasn't under time pressure.

Sales were 91k to 3rd parties. However 50% of the intercompany sales remain. 50% x 100,000 COS = 50,000. So 91K - 50k = 41k

I know that 50% remain because the COS to CEE is 130k (Bee to Cee) and 65k remained in Cee inventory. The original COS from Bee was 100k which is what would be in the Consolidated statements.

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FAR: 011210 63; 072310 84
BEC: 021510 73; 081810 81
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No "Except for" on the CPA license.

bala
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Joined: 09 Jan 2009
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Posts: 355

Posted: 16 Sep 2010 at 02:29 \| IP Logged

Thanks so much Aesop! you made it simple. your explanation is much much better than Becker! really appreciate it.

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Aesop
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Joined: 23 Feb 2010
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Posted: 16 Sep 2010 at 14:12 \| IP Logged

Thanks Bala, was really glad that I could help.

__________________
Aud: 020810 67; 042110 78
FAR: 011210 63; 072310 84
BEC: 021510 73; 081810 81
REG: 022410 80;
4/7 will win any World Series

No "Except for" on the CPA license.

yukagin
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Joined: 03 Jun 2010
Online Status: Offline
Posts: 84

Posted: 04 Feb 2011 at 03:02 \| IP Logged

Thanks for this explanation. having trouble with this one
too :)

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