Question

Problem 1 anuary 1, 2013, Carpenter acquired 40 percent ownership in Cudd for $1,140,000. This acquisition arpenter the ability to exercise significant influence over the investee. The book value of the ured shares was $800,000. Any excess cost over the book value was assigned to a Dunding WING undervalued on its balance sheet. The building has a remaining useful life of 10 years. For the year chued December 31, 2013, Cudd reported net income of $240,000 and declared cash dividends or 0,000. During 2013, Cudd sold inventory to Carpenter for $100,000 which cost Cudd $70,000. 20 percent of this inventory remained in carpenter's inventory at year end. During 2014 Cudd sold inventory to Carpenter for $120,000 which cost Cudd $96,000, of which 40 percent was held by Carpenter at year end. For the year ended December 31, 2014, Cudd reported net income of $250,000 and declared dividends of$30,000. Required: Prepare a schedule to show what Carpenter should report as its investment balance in Cudd as of December 31, 2014.

my question is how do i calulate the inventorry

Answer 1

Answer:

Calculation of inventory at the year end in the books of Carpenter

In the given case Cudd sold inventory to Carpenter and the balance is existing in the books of Carpenter at the year end .

Moreover Carpenter has a significant influence over the Cudd.

Therefore Carpenter should record the inventory existing at the year end at cost. Profit element should be eliminated from the inventory value

Hence inventory to be reported in the Balance sheet of carpenter

=(($100000*.2)*$70000/$100000) +(($120000*.4)*$96000/$120000)

= $52400.