Exercise 7 (LO 4) Three-level purchase, inventory and fixed asset sales. Companies A, B, and C produced the following separate internally generated net incomes during 20X5:

ABC Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $300,000 $400,000 $100,000 Less cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . 200,000 300,000 60,000 Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $100,000 $100,000 $ 40,000 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60,000 30,000 10,000 Internally generated net income . . . . . . . . . . . . . . . . . $ 40,000 $ 70,000 $ 30,000 Company A purchased an 80% interest in Company B on January 1, 20X2, and Company B purchased a 60% interest in Company C on January 1, 20X3. Each investment was acquired at a price equal to the book value of the stock purchased.

Additional information:

a. Company A purchased goods billed at $30,000 from Company C during 20X5. The price includes a 40% gross profit. One-half of the goods are held in Company A’s year-end inventory.

b. Company B purchased goods billed at $30,000 from Company A during 20X5. Company A always bills Company B at a price that includes a 30% gross profit. Company B had $6,000 of Company A goods in its beginning inventory and $2,400 of Company A goods in its ending inventory