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What would be the impact on inventory turnover

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Reference no: EM133190111

Question - Pen Company acquired 70 percent of the common shares of Sen Company in January 2019. During 2020, Pen sold inventory to Sen for $100,000 and earned a gross margin of 30 percent. At the end of Year 2020, Sen still had the goods purchased from Pen in its inventory. Both companies turn over their inventory at least five times a year.

What would be the impact on inventory turnover for Year 2020 consolidated financial statements if no consolidation adjustments were made with respect to the intercompany sale and unrealized profit?

a. It would be understated.

b. The impact cannot be determined based on the information provided.

c. It would be overstated.

d. It would not be affected.

Reference no: EM133190111

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