During 2016, The K Company sold inventory costing it $100,000 to its 100% owned subsidiary, S Company. K marked up the inventory so that it achieved 50% gross profits on sales. By the end of the year(12/31/2016), S Company had sold 80% of the inventory to an outside, independent company for $230,000.
Require A:
1. By how much is inventory overstated on S Company's books, before the elimination entry on December 31, 2016?
2. Prepare the elimination entry needed to eliminate the gross profit that should not be recognized in the consolidated financial statements of December 31, 2016.
Require B:
1. Now assume in the next year, 2017, S Company sells the remaining inventory to outsiders for $70,000. Prepare the elimination entry for December 31, 2017.