Route Manufacturing purchased 80 percent of the stock of Hampton Mines Inc. in 20X3. In preparing the consolidated financial statements at the end of 20X5, Route's controller discovered that Route had purchased $75,000 of raw materials from Hampton Mines during the year and that the parent company had not paid for the last purchase of $12,000. All the inventory purchased was still on hand at year-end. Hampton Mines had spent $50,000 in producing the items sold to Route.
b. What effect, if any, will failure to eliminate or adjust for these items have on the consolidated entity's net working capital?
c. What effect, if any, will failure to eliminate or adjust for these?
This solution shows step-by-step calculations to show the effect of failure to eliminate or adjust items in current assets and consolidated entity's net working capital in an Excel file.