The Trial Balances of Ash Inc Other Information:
Ash Acquired Cinder in Three Stages

question 25

Essay

The trial balances of Ash Inc. and its subsidiary Cinder Corp. on December 31, 2018 are shown below: $\begin{array}{|l|l|l|} \hline& \text { Ash } & \text { Cinder } \\\hline \text { Imventory } & \$ 160,000 & \$ 100,000 \\\hline \text { Plant and Equipment (net) } & \$ 2,700,000 & \$ 700,000 \\\hline \text { Dividends Declared } & \$ 200,000 & \$ 100,000 \\\hline \text { Investment in Cinder } & \$ 700,000 &- \\\hline \text { Cost of Goods Sold } & \$ 650,000 & \$ 90,000 \\\hline \text { Other Expenses } & \$ 50,000 & \$ 10,000 \\\hline \text { Total Assets } & \$ 4,460,000 & \$ 1,000,000 \\\hline\\\hline \text { Liabilities } & \$ 1,000,000 & \$ 150,000 \\\hline \text { Common Shares } & \$ 1,660,000 & \$ 600,000 \\\hline \text { Retained Earnings } & \$ 600,000 & \$ 100,000 \\\hline \text { Sales and Other Revenue } & \$ 1,200,000 & \$ 150,000 \\\hline \text { Total Labilities and Equity } & \$ 4,460,000 & \$ 1,000,000 \\\hline\end{array}$ Other Information:
Ash acquired Cinder in three stages:
$\begin{array}{|l|l|}\hline \text { January 1, 2015: } & \begin{array}{l}\text { Ash purchased } 10,000 \text { shares for } \$ 100,000 . \text { Cinder's Retained Earnings were } \$ 40,000 \text { on that } \\\text { date. }\end{array} \\\hline \text { January 1, 2017: } & \begin{array}{l}\text { Ash purchased } 30,000 \text { shares for } \$ 450,000 . \text { Cinder's Retained Earnings were } \$ 80,000 \text { on that } \\\text { date. }\end{array} \\\hline \begin{array}{l}\text { December 31, } \\2018:\end{array} & \begin{array}{l}\text { Ash purchased } 20,000 \text { shares for } \$ 150,000 . \text { Cinder's Retained Earnings were } \$ 100,000 \text { on that } \\\text { date. }\end{array} \\\hline\end{array}$ Cinder was incorporated on January 1, 2013. On that date, Cinder issued 100,000 voting shares. Any difference between the cost and book value is attributable entirely to trademarks, which are to be amortized over 5 years. The company has neither issued nor retired shares since the date of its incorporation.
Ash sold depreciable assets to Cinder at a loss of $20,000 on January 1, 2017. These assets had a 10 year remaining life.
Intercompany sales of inventory during 2018 amounted to $250,000. Unrealized inventory profits for each company are shown below for 2018. The amounts indicate the amount of profit in each company's inventory. $$\begin{array} { | l | l | } \hline \text { Ash } & \\\hline \text { January 1, 2018: } & \$ 10,000 \\\hline \text { December 31, 2018 } & \$ 20,000 \\\hline & \\\hline \text { Cinder } & \\\hline \text { January 1, 2018: } & \$ 20,000 \\\hline \text { December 31, 2018 } & \$ 40,000 \\\hline\end{array}$$
All inventories on hand at the start of 2018 were sold to outsiders during the year. The net Incomes of both companies are evenly earned throughout the year. Both companies are subject to an effective corporate tax rate of 20%.
-Compute consolidated inventory for Ash as at December 31, 2018.

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Definitions:

Materials Costs

Expenses incurred in the acquisition of raw materials used in production.

Conversion Cost

The sum of direct labor and manufacturing overhead costs, representing the expense to convert raw materials into finished products.

Ending Work

Ending work often refers to the inventory of unfinished goods at the end of an accounting period.

Conversion Cost

Costs incurred during the manufacturing process, which include direct labor and overhead costs, to convert raw materials into finished products.