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

question 30

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's 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: $$\begin{array} { | l | r | r | } \hline & \text { Bates } & \text { Sam } \\\hline \text { Beginning inventory } & \$ 100,000 & \$ 50,000 \\\hline \text { Purchases } & 700,000 & 200,000 \\\hline \text { Ending inventory } & \underline { ( 110,000 } & \underline { 55,000 } \\\hline \text { Cost of goods sold } & \$ \underline { 690,000 } & \$ \underline { 195,000 } \\\hline\end{array}$$ What is the balance of the inventory account on Bates's 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:

Cash Flows

The net amount of cash and cash-equivalents being transferred into and out of a business.

Net Present Value

A financial metric used to evaluate the profitability of an investment, representing the difference between the present value of cash inflows and outflows over a period.

Capital Budgeting

The process of evaluating and selecting long-term investments that are in line with the goal of maximizing shareholder wealth.

Investments

Assets or items acquired with the goal of generating income or appreciation in value over time.