X Inc Owns 80% of Y Inc

question 31

Multiple Choice

X Inc. owns 80% of Y Inc. During 2012, 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?

• A) $2,000.
• B) $1,000.
• C) $600.
• D) $400.

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Definitions:

Unrestricted

Free from limitations, controls, or restrictions; allowing complete freedom of movement, action, or use.

Condone

To overlook, forgive, or disregard an offense without protest or censure.

Aggressive Behaviors

Actions characterized by physical or verbal attacks intended to cause harm or assert dominance.

Supervise

To oversee, monitor, or direct the activities of individuals or groups to ensure guidelines or instructions are followed.