Let's solve the problem **step by step** to find the **total consolidated operating expenses at December 31, 2024**. --- ## 1. **Given Operating Expenses** - **Pride:** $28,000 - **Strong:** $14,000 **Sum without adjustments:** $28,000 + $14,000 = $42,000 --- ## 2. **Intercompany Transactions Adjustment** ### **Details** - Pride sold inventory to Strong for $140,000 (cost to Pride was $112,000). - Only half of the purchase price ($70,000) was remitted by Strong at year-end. - As of December 31, 60% of these goods remain in Pride's inventory. ### **Intercompany Profit** - Sale Price = $140,000 - Cost = $112,000 - **Gross profit = $140,000 - $112,000 = $28,000** #### **Unrealized Profit in Ending Inventory** - Inventory remaining with Pride = 60% of intercompany goods - Value of inventory remaining = 60% × $140,000 = $84,000 - Percentage of profit in remaining inventory = $28,000 / $140,000 = 20% - **Unrealized profit = 20% × $84,000 = $16,800** --- ## 3. **Effect on Operating Expenses** Operating expenses need to eliminate the effect of intercompany profit included in ending inventory. However, operating expenses are not directly affected by the unrealized profit in inventory (that affects cost of goods sold and inventory values, not operating expenses). **Operating expenses are only affected if there are intercompany services, rent, etc., not merchandise sales.** **Given in the data:** Operating expenses for Pride and Strong are already provided, and there is no indication of intercompany operating expense transactions. --- ## **4. Final Calculation** - **Pride's Operating Expenses:** $28,000 - **Strong's Operating Expenses:** $14,000 - **Intercompany Elimination:** $ (no intercompany operating expenses to eliminate) ### **Total Consolidated Operating Expenses** \[ \text{Total} = \$28,000 + \$14,000 = \$42,000 \] --- ## **Final Summary** **The total consolidated operating expenses at December 31, 2024, are:** \[ \boxed{\$42,000} \] **Correct answer: $42,000** (Option 4). No adjustment is needed for the intercompany inventory profit, as it does not affect operating expenses.

# Consolidated Operating Expenses Calculation Let's reevaluate the calculation for the total consolidated operating expenses at December 31, 2024. ## 1. **Initial Operating Expenses** ### Given Data - **Pride Operating Expenses:** $28,000 - **Strong Operating Expenses:** $14,000 **Initial Sum:** \[ \text{Total Operating Expenses} = 28,000 + 14,000 = 42,000 \] --- ## 2. **Assess Intercompany Transactions** ### Details of Transaction - Pride sold inventory to Strong for $140,000. - The cost to Pride was $112,000. - Strong has paid half ($70,000) of the transaction amount. - 60% of the purchased inventory remains unsold in Strong’s inventory. ### Calculation of Unrealized Profit - **Gross Profit Calculation:** \[ \text{Gross Profit} = \text{Sale Price} - \text{Cost} = 140,000 - 112,000 = 28,000 \] - **Unrealized Profit in Ending Inventory:** - **Value of Inventory Remaining:** \[ \text{Remaining Inventory} = 60\% \times \text{Total Sale Price} = 0.6 \times 140,000 = 84,000 \] - **Percentage of Profit:** \[ \text{Profit Percentage} = \frac{28,000}{140,000} = 20\% \] - **Unrealized Profit:** \[ \text{Unrealized Profit} = 20\% \times 84,000 = 16,800 \] ### Effect on Operating Expenses Operating expenses are not directly impacted by unrealized profits from inventory sales. However, the unrealized profit affects the cost of goods sold rather than operating expenses. ## 3. **Final Calculation of Operating Expenses** - **Pride's Operating Expenses:** $28,000 - **Strong's Operating Expenses:** $14,000 - **No intercompany operating expense transactions to eliminate.** ### Total Consolidated Operating Expenses \[ \text{Total Operating Expenses} = 28,000 + 14,000 = 42,000 \] --- ## **Final Summary** The total consolidated operating expenses at December 31, 2024, are: \[ \boxed{42,000} \] This confirms that the previous answer of $42,000 is indeed correct. There are no adjustments needed for unrealized profits affecting operating expenses.