Question 1
A) Given: Gross profit rate = 50%, Unsold merchandise = 30%, Tax Rate = 40%
Merchandise sold for $194,000 (Student number: 798940)
Unrealized Profits Before-Tax: $29,100
$194,000 * 30% = $58,200
$58,200 * 50% = $29,100
Unrealized Profits After-Tax: $17,460
$194,00 * 30% = $58,000
$58,000*50% = $29,100
$29,100 *(100% - 40%) = $17,460
B) Given: Mark-up on Cost = 50%, Unsold merchandise = 70%, Tax Rate = 40%
Merchandise sold for $184,000
Gross Profit = 184,000/1.50 = $122,666.67 = $122,667 = $184,000 - $122,667 = $61,333
Unrealized Profits Before-Tax: $42,933
$61,333 * 70% = $42,933
Unrealized Profits After-Tax: $25,760
$42,933 * (100% - 40%) = $25,760
C) Given: Gross profit rate:40%, Tax rate: 24% (40*0.1= 4, 20+4 = 24%)
R = COGS = $200,000, remaining inventory = 40%
Unrealized profit Before Tax: $53,333
$ 200,000/60% = $333,333 = $333,333 – 200,000 = $133,333
Profit: $133,333
Unrealized Profit = $133,333 *40% = $53,333
Unrealized Profits After-Tax: $40,533
$53,333* (100% - 24%) = $40,533
, Question 2:
Purchase of 30% of the outstanding shares at $1,900,000
Building Market Value: $250,000 + (100*940) = $344,000
Merchandise sold to Symmetry = $150,000 + (1,000 * 40) = $190,000
Harmony’s Tax rate = 30%
Gross Profits rate = 40%, Unsold Inventory = 60%
Symmetry NI = $550,000, Dividends = $330,000
Market Price of the share = $40
Date Entry Debit Credit
January 1, Investment in Symmetry 1,900,000
Year 1
Cash 1,900,000
To record acquisition of 50,000 shares @ 30% of
Symmetry Ltd. For cash
December Investment in Symmetry Ltd 126,000
31, Year 1
Investment Income 126,000
To record 30% equity in Symmetry’s Year 1 net income
($420,000 x 30%)
December Cash (Dividends receivable) 66,000
31, Year 1
Investment in Symmetry Ltd 66,000
To record 30% share of dividends paid by Symmetry
($220,000 x 30%)
December Investment Income 10,320
31, Year 1
Investment in Symmetry Ltd. 10,320
To amortize excess FV of building over 10 years
remaining life ($344,000 x 30% / 10)
December Investment Income 9,576
31, Year 1
Investment in Symmetry Ltd. 9,576
To eliminate unrealized after-tax profit from the
downstream sale remaining in the ending inventory.
A) Given: Gross profit rate = 50%, Unsold merchandise = 30%, Tax Rate = 40%
Merchandise sold for $194,000 (Student number: 798940)
Unrealized Profits Before-Tax: $29,100
$194,000 * 30% = $58,200
$58,200 * 50% = $29,100
Unrealized Profits After-Tax: $17,460
$194,00 * 30% = $58,000
$58,000*50% = $29,100
$29,100 *(100% - 40%) = $17,460
B) Given: Mark-up on Cost = 50%, Unsold merchandise = 70%, Tax Rate = 40%
Merchandise sold for $184,000
Gross Profit = 184,000/1.50 = $122,666.67 = $122,667 = $184,000 - $122,667 = $61,333
Unrealized Profits Before-Tax: $42,933
$61,333 * 70% = $42,933
Unrealized Profits After-Tax: $25,760
$42,933 * (100% - 40%) = $25,760
C) Given: Gross profit rate:40%, Tax rate: 24% (40*0.1= 4, 20+4 = 24%)
R = COGS = $200,000, remaining inventory = 40%
Unrealized profit Before Tax: $53,333
$ 200,000/60% = $333,333 = $333,333 – 200,000 = $133,333
Profit: $133,333
Unrealized Profit = $133,333 *40% = $53,333
Unrealized Profits After-Tax: $40,533
$53,333* (100% - 24%) = $40,533
, Question 2:
Purchase of 30% of the outstanding shares at $1,900,000
Building Market Value: $250,000 + (100*940) = $344,000
Merchandise sold to Symmetry = $150,000 + (1,000 * 40) = $190,000
Harmony’s Tax rate = 30%
Gross Profits rate = 40%, Unsold Inventory = 60%
Symmetry NI = $550,000, Dividends = $330,000
Market Price of the share = $40
Date Entry Debit Credit
January 1, Investment in Symmetry 1,900,000
Year 1
Cash 1,900,000
To record acquisition of 50,000 shares @ 30% of
Symmetry Ltd. For cash
December Investment in Symmetry Ltd 126,000
31, Year 1
Investment Income 126,000
To record 30% equity in Symmetry’s Year 1 net income
($420,000 x 30%)
December Cash (Dividends receivable) 66,000
31, Year 1
Investment in Symmetry Ltd 66,000
To record 30% share of dividends paid by Symmetry
($220,000 x 30%)
December Investment Income 10,320
31, Year 1
Investment in Symmetry Ltd. 10,320
To amortize excess FV of building over 10 years
remaining life ($344,000 x 30% / 10)
December Investment Income 9,576
31, Year 1
Investment in Symmetry Ltd. 9,576
To eliminate unrealized after-tax profit from the
downstream sale remaining in the ending inventory.
