………………………………December 31, 2017…………. December 31, 2018 — Pam Company owns controlling interests Sun and Toy Corporations having acquired percent

Pam Company owns controlling interests in Sun and Toy Corporations, having acquired an 80 percent interest in Sun in 2016, and a 90 percent interest in Toy on January 1, 2017. Pam’s investments in Sun and Toy were at book value equal to fair value. Inventories of the affiliated companies at December 31, 2017, and December 31, 2018, were as follows:

………………………………December 31, 2017…………. December 31, 2018

Pam inventories …………………………$120,000……………………. $108,000

Sun inventories……………………………. 77,500………………………. 62,500

Toy inventories …………………………….48,000………………………. 72,000

Pam sells to Sun at a 25 percent markup based on cost, and Toy sells to Pam at a 20 percent markup based on cost. Pam’s beginning and ending inventories for 2018 consisted of 40 percent and 50 percent, respectively, of goods acquired from Toy. All of Sun’s inventories consisted of merchandise acquired from Pam.

REQUIRED:

1. Calculate the inventory that should appear in the December 31, 2017, consolidated balance sheet.

2. Calculate the inventory that should appear in the December 31, 2018, consolidated balance sheet.

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	Beginning inventory — Pam ($120,000 - $8,000a)	$112,000
	Beginning inventory — Sun ($77,500 - $15,500b)	62,000
	Beginning inventory — Toy ($48,000 - $0)	48,000
	Inventories December 31	$222,000
	Intercompany profit:
	aPam:

	Inventory acquired intercompany ($120,000 40%)	$ 48,000
	Cost of intercompany inventory ($48,000/1.2)	(40,000)
	Unrealized profit in Pam's inventory	$ 8,000
bSun:

		Inventory acquired intercompany ($77,500 100%)	$ 77,500
		Cost of intercompany inventory ($77,500/1.25)	(62,000)
		Unrealized profit in Sun's inventory	$ 15,500

	Ending inventory — Pam ($108,000 - $9,000c)	$ 99,000
	Ending inventory — Sun ($62,500 - $12,500d)	50,000
	Ending inventory — Toy ($72,000 - 0)	72,000
	Inventories December 31	$221,000
	Intercompany profit:
	cPam:

	Inventory acquired intercompany ($108,000 50%)	$ 54,000
	Cost of intercompany inventory ($54,000/1.2)	(45,000)
	Unrealized profit in Pam's inventory	$ 9,000
dSun:

		Inventory acquired intercompany ($62,500 100%)	$ 62,500
		Cost of intercompany inventory ($62,500/1.25)	(50,000)
		Unrealized profit in Sun's inventory	$ 12,500

………………………………December 31, 2017…………. December 31, 2018 — Pam Company owns controlling interests Sun and Toy Corporations having acquired percent

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SOLUTION