Reference no: EM133921815

Problem

Paggle Corporation owns 80% of Spillway Inc.'s common stock that was purchased at its underlying book value. At the time of purchase, the book value and fair value of Spillway's net assets were equal. The two companies report the following information for 2014 and 2015. Get the instant assignment help.

During 2014, one company sold inventory to the other company for $50,000 which cost the transferor $40,000. As of the end of 2014, 30% of the inventory was unsold. In 2015, the remaining inventory was resold outside the consolidated entity.

2014 Selected Data:          Paggle                     Spillway
Sales Revenue                  $600,000                 $320,000
Cost of Goods Sold           320,000                  155,000
Other Expenses                100,000                  89,000
Net Income                       $180,000                $76,000
Dividends Paid                   19,000                   0

2015 Selected Data:          Paggle                    Spillway
Sales Revenue                  $580,000                $445,000
Cost of Goods Sold           300,000                 180,000
Other Expenses                130,000                 171,000
Net Income                       $150,000               $94,000
Dividends Paid                   16,000                  5,000

If the sale referred to above was a downstream sale, by what amount must Inventory on the consolidated balance sheet be reduced to reflect the correct balance as of the end of 2014?