X Inc. owns 80% of Y Inc. During 2020, X Inc. sold inventory to Y for $10,000. Half of this inventory remained in Y's warehouse at year end. Y Inc. sold inventory to X Inc. for $5,000. 40% of this inventory remained in X's warehouse at year end. Both companies are subject to a tax rate of 40%. The gross profit percentage on sales is 20% for both companies. Unless otherwise stated, assume X Inc. uses the cost method to account for its investment in Y Inc. What is the after-tax dollar value of X's unrealized profits during the year on its sales to Y? $400 $1,000 • $600 ● $2,000
X Inc. owns 80% of Y Inc. During 2020, X Inc. sold inventory to Y for $10,000. Half of this inventory remained in Y's warehouse at year end. Y Inc. sold inventory to X Inc. for $5,000. 40% of this inventory remained in X's warehouse at year end. Both companies are subject to a tax rate of 40%. The gross profit percentage on sales is 20% for both companies. Unless otherwise stated, assume X Inc. uses the cost method to account for its investment in Y Inc. What is the after-tax dollar value of X's unrealized profits during the year on its sales to Y? $400 $1,000 • $600 ● $2,000
Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Chapter16: Retained Earnings And Earnings Per Share
Section: Chapter Questions
Problem 23E
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Transcribed Image Text:X Inc. owns 80% of Y Inc. During 2020, X
Inc. sold inventory to Y for $10,000. Half of
this inventory remained in Y's warehouse at
year end.
Y Inc. sold inventory to X Inc. for $5,000.
40% of this inventory remained in X's
warehouse at year end.
Both companies are subject to a tax rate of
40%. The gross profit percentage on sales
is 20% for both companies. Unless
otherwise stated, assume X Inc. uses the
cost method to account for its investment
in Y Inc.
What is the after-tax dollar value of X's
unrealized profits during the year on its
sales to Y?
$400
$1,000
$600
• $2,000
●
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