Question

Pratt Company owns 80% of Storey Company's common stock?

Pratt Company owns 80% of Storey Company's common stock. During 2011, Storey sold $400,000 of merchandise to Pratt. At December 31, 2011, one-fourth of the merchandise remained in Pratt's inventory. In 2011, gross profit percentages were 25% for Pratt and 30% for Storey. The amount of unrealized intercompany profit that should be eliminated in the consolidated statements is

3 years ago - 1 answers

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Storey sold $400,000 of merchandise to Pratt. At December 31, 2011, one-fourth of the merchandise remained in Pratt's inventory, i.e. $100,000. Since it was Storey who sold to Pratt, it's Storey's GP that you should apply. So the amount of unrealized intercompany profit that should be eliminated in the consolidated statements is $30,000. I believe that US GAAP does not allow fractional elimination.

3 years ago