Bates LtdOwns 60% of the Outstanding Common Shares of Sam Ltd

question 24

Multiple Choice

Bates Ltd.owns 60% of the outstanding common shares of Sam Ltd.During 20X6,sales from Sam to Bates were $200,000.Merchandise was priced to provide Sam with a gross margin of 20%.Bates' inventories contained $40,000 at December 31,20X5 and $15,000 at December 31,20X6 of merchandise purchased from Sam.Cost of goods sold for Bates and Sam for 20X6 on their separate-entity income statements were as follows:

What is the balance of the inventory account on Bates' consolidated statement of financial position at December 31,20X6?

• A)$140,000
• B)$160,000
• C)$162,000
• D)$165,000

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Definitions:

Required Reserves

The minimum amount of reserves that a bank must hold as mandated by the central bank or regulatory authority, usually a percentage of the bank's deposit liabilities.

Excess Reserves

Funds held by banks over and above the legally mandated reserve requirement, which can be lent out to generate additional income or held as a safeguard against potential withdrawals.

Bank A

A generic term used to denote a financial institution licensed to receive deposits, offer loans, and provide other financial services to its customers.

Inflationary GDP Gap

The excess amount by which the actual gross domestic product (GDP) exceeds the potential GDP, leading to inflation.