Use the Following Information to Answer the Question(s) Below

question 27

Multiple Choice

Use the following information to answer the question(s) below.

Pew Corporation acquired 80% ownership of Sordid Incorporated, at a time when Pew's investment cost was equal to 80% of Sordid's book value. At the time of acquisition, the book values and fair values of Sordid's assets and liabilities were equal. Pew uses the equity method. During 2014, Pew sold goods to Sordid for $160,000 making a gross profit percentage of 20%. Half of these goods remained unsold in Sordid's inventory at the end of the year. Income statement information for Pew and Sordid for 2014 were as follows:


-The 2014 consolidated income statement showed cost of goods sold of

• A)$500,000.
• B)$516,000.
• C)$532,000.
• D)$660,000.

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Definitions:

Market Failure

A situation where the allocation of goods and services by a free market is not efficient, often leading to a net societal welfare loss.

Capitalism

An economic system where trade, industries, and the means of production are largely or entirely privately owned and operated for profit.

Public Goods

Goods that are non-excludable and non-rivalrous, meaning they are accessible to all members of society and one person's use does not reduce availability to others.

Indivisible

A characteristic of goods or factors that cannot be divided or separated into smaller units without losing value or utility.