Upstream sales of 800,000 leave 60,000 of unrealized profit in the parent's inventory; within AC450's Unit 5 intercompany inventory problem, that cuts the family's 2027 share to 194,400. Searches like "ac 450 unit 5 assignment example", "ac450 unit 5 sample" and "ac450 unit 5 example" land here.
What a finished AC450 Unit 5 intercompany inventory problem looks like
Three entries, a schedule of unrealized profit and a half-page on who bears it. The schedule sets two lots against each other: 200,000 of glassworks goods left in the parent's year-end inventory at a 30 percent gross margin, holding 60,000 of profit, and 150,000 carried over from 2026 at 28 percent, holding 42,000 realized in 2027. Entry TI removes 800,000 from both sales and cost of goods sold. Entry G defers the 60,000 by raising cost of goods sold and reducing inventory. Entry *G debits the glassworks' opening retained earnings 42,000 and credits cost of goods sold, moving last year's deferral into 2027 income; it hits the glassworks' equity because the sale ran upstream. The allocation page recomputes the glassworks' income as 1,120,000 less 130,000 of amortization, less 60,000, plus 42,000, or 972,000.
How a AC450 Unit 5 example is structured
Direction is settled before any entry, since it decides whose income absorbs the deferral. The problem states that the glassworks sold to the parent, so the profit sits in the glassworks' books, and the family's 20 percent share of it moves with every adjustment. The prior-year entry *G comes first so that opening retained earnings is right before entry S removes it; the current-year TI and G follow. Each entry carries a sentence naming the distortion it removes: TI the sale the group made to itself, G profit on goods the group still holds, *G profit deferred last year and earned this year when the flasks reached laboratories outside the group. A closing paragraph reruns the family's share as if the sale had gone downstream, 198,000 instead of 194,400, and explains the 3,600 difference as 20 percent of the net 18,000 deferral.
Which way the goods moved
Upstream, from the glassworks to the parent. The profit therefore belongs to the glassworks' income and is shared with the family, which a downstream sale would not require.
Removing a sale to itself
Entry TI takes 800,000 out of sales and cost of goods sold alike. Gross profit does not change, and the paragraph beside the entry says so, which is why this step alone fixes nothing about income.
Profit still on the parent's shelves
Of 200,000 in the parent's closing inventory, 30 percent is glassworks margin. Entry G defers 60,000, lowering both consolidated inventory and 2027 income by that amount.
Last year's deferral, released
The 150,000 of 2026 goods sold to outside laboratories early in 2027. Entry *G moves their 42,000 of profit from opening retained earnings into this year, with 8,400 of that charge falling on the family.
The family's share, twice
Upstream, 20 percent of 972,000 is 194,400; downstream it would be 198,000. The 3,600 gap is shown as a single line so the direction rule cannot be missed.
Where marks go in AC450 Unit 5
Most deductions in this problem trace to direction. Charging the whole 60,000 deferral to the parent, as if the flasks had moved downstream, leaves the family's share at 198,000 and misstates both income lines. Posting *G against the parent's retained earnings instead of the glassworks' has the same root and places 8,400 in the wrong owner's equity. Leaving out entry G keeps inventory and income 60,000 too high, and graders test for it precisely because nothing else on the worksheet flags the omission. Deferring the full 800,000 of sales, or deferring profit on goods already sold to outside laboratories, confuses the transaction with its margin. Swapping the two lots' margin rates is a smaller slip. Explanation still counts: an entry G posted with no sentence naming the distortion it removes usually earns partial credit.
Get a AC450 Unit 5 example written to your instructions
Intercompany problems hinge on three facts, the direction of each sale, the markup or margin, and how much remains unsold at each year end. With those three, the trial balances and the rubric in hand, deferrals are computed lot by lot and returned inside 24-48h, with the first custom problem free.
AC450 Unit 5 questions, answered
Why does an upstream sale affect the noncontrolling interest?
Because the profit on an upstream sale was recorded by the glassworks, and the family owns 20 percent of the glassworks' income. Deferring that profit lowers the glassworks' realized income, so the family's share falls with it. A downstream sale puts the profit in the parent's books, and the family's share is untouched. The sample shows both computations to make the difference visible.
Is the deferral based on markup on cost or gross margin on sales?
Whichever the problem states, applied to the right base. A 30 percent margin on sales applied to 200,000 of inventory at transfer price gives 60,000. A markup on cost has to be converted first: a markup of about 42.9 percent on cost is the same 30 percent margin. Many errors in this unit come from applying a markup directly to inventory held at transfer price.
Can the sample use my own intercompany figures?
Yes. Send the sales between affiliates, the margin, the inventory remaining at each year end, the direction of each sale and the ownership percentage, with your rubric. Each entry comes back with its amount, its reason and its effect on the noncontrolling interest, so a problem with sales running both ways gets two sets of deferrals kept apart.