Pastern Industries Has an 80% Ownership Stake in Sascon Incorporated

question 21

Essay

Pastern Industries has an 80% ownership stake in Sascon Incorporated.At the time of purchase,the book value of Sascon's assets and liabilities were equal to the fair value.The cost of the 80% investment was equal to 80% of the book value of Sascon's net assets.At the end of 2014,they issued the following consolidated income statement:
Shortly after the statements were issued,Pastern discovered that the 2014 intercompany sales transactions had not been properly eliminated in consolidation.In fact,Pastern had sold inventory that cost $80,000 to Sascon for $90,000,and Sascon had sold inventory that cost $50,000 to Pastern for $65,000.Half of the products from both transactions still remained in inventory at December 31,2014.
Required: Prepare a corrected income statement for Pastern and Subsidiary for 2014.

Understand the concept and calculation of the marginal propensity to save (MPS) and its economic implications.

Grasp the effects of changes in autonomous investment on the economy's equilibrium and the concept of the spending multiplier.

Comprehend how current production levels relative to planned expenditure affect inventories and production decisions.

Understand how autonomous investments affect aggregate expenditure and its impact on the economy.

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Definitions:

Laws Of Variance

Principles that describe how variance behaves in different statistical distributions and under various transformations.

Probability Distribution

A function in mathematics that determines the chances of different outcomes for a given experiment.

Variance

A measure of the dispersion or spread of a set of values, calculated as the average of the squared differences from the Mean.

Standard Deviation

An indicator that quantifies the extent of spread or diversity among values in a dataset, showing how far the values diverge from the average.