consumed in the following year (2009). By the end of 2009, ABC Inc. reported total inventory of $120,000. Out of this amount, 25% represented the remaining amount of an inventory that was purchased from Muscat Corp during 2009. ABC Inc. plans to sell this inventory in 2010. Assume that ABC Inc. sold 70% of the total inventory purchased from Muscat Corp. during 2009 in the same year. Assume further that, Muscat Corp sold the inventory to ABC Inc. at a markup of 25% of cost. For 2009, ABC Inc. reported net income of $90,000 and declared and paid dividends of $20,000. Required: Prepare all the necessary journal entries to be recorded by Muscat Corp for 2009 in relation to the above info
consumed in the following year (2009). By the end of 2009, ABC Inc. reported total inventory of $120,000. Out of this amount, 25% represented the remaining amount of an inventory that was purchased from Muscat Corp during 2009. ABC Inc. plans to sell this inventory in 2010. Assume that ABC Inc. sold 70% of the total inventory purchased from Muscat Corp. during 2009 in the same year. Assume further that, Muscat Corp sold the inventory to ABC Inc. at a markup of 25% of cost. For 2009, ABC Inc. reported net income of $90,000 and declared and paid dividends of $20,000. Required: Prepare all the necessary journal entries to be recorded by Muscat Corp for 2009 in relation to the above info
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
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Question
On July 1, 2008, Muscat Corp. acquired a 30% interest in ABC Inc. for $250,000 in cash. On that
date, ABC Inc’s balance sheet disclosed net assets of $430,000. It also had a patent that was
undervalued in its books by $70,000 (remaining useful life is 10 years). It had also an equipment
that was overvalued by $20,000 (remaining useful life is 10 years). Muscat Corp. records the
purchase based on the equity method.
During 2008, ABC Inc. reported net income of $100,000 and declared and paid cash dividends of
$30,000. Muscat Corp. sold inventory costing $40,000 to ABC Inc. at a markup of 50% of cost. on
September 1, 2008. ABC Inc. used 60% of this merchandise in its operations during 2008. The
remaining inventory is consumed in the following year (2009).
By the end of 2009, ABC Inc. reported total inventory of $120,000. Out of this amount, 25%
represented the remaining amount of an inventory that was purchased from Muscat Corp during
2009. ABC Inc. plans to sell this inventory in 2010. Assume that ABC Inc. sold 70% of the total
inventory purchased from Muscat Corp. during 2009 in the same year. Assume further that,
Muscat Corp sold the inventory to ABC Inc. at a markup of 25% of cost. For 2009, ABC Inc.
reported net income of $90,000 and declared and paid dividends of $20,000.
Required:
Prepare all the necessary journal entries to be recorded by Muscat Corp for 2009 in relation to
the above information.
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