Sar Corporation, a 90 percent-owned subsidiary of Pan Corporation, buys half of its raw materials from Pan.
Question:
Sar Corporation, a 90 percent-owned subsidiary of Pan Corporation, buys half of its raw materials from Pan. The transfer price is exactly the same price as Sar pays to buy identical raw materials from outside suppliers and the same price as Pan sells the materials to unrelated customers. In preparing consolidated statements for Pan Corporation and Subsidiary:
a. The intercompany transactions can be ignored because the transfer price represents arm’s-length bargaining
b. Any unrealized profit from intercompany sales remaining in Pan’s ending inventory must be offset against the unrealized profit in Pan’s beginning inventory
c. Any unrealized profit on the intercompany transactions in Sar’s ending inventory is eliminated in its entirety
d. Only 90 percent of any unrealized profit on the intercompany transactions in Sar’s ending inventory is eliminated.
Fundamental Managerial Accounting Concepts
ISBN: 978-0078110894
6th Edition
Authors: Edmonds, Tsay, olds