Paggle Corporation owns 80% of Spillway Inc.'s common stock that was purchased at its underlying book value. At the time of purchase, the book value and fair value of Spillway's net assets were equal. The two companies report the following information for 2014 and 2015.
During 2014, one company sold inventory to the other company for $50,000 which cost the transferor $40,000. As of the end of 2014, 30% of the inventory was unsold. In 2015, the remaining inventory was resold outside the consolidated entity.
2014 Selected Data: Paggle Spillway
Sales Revenue $600,000 $320,000
Cost of Goods Sold 320,000 155,000
Other Expenses 100,000 89,000
Net Income $180,000 $76,000
Dividends Paid 19,000 0
2015 Selected Data: Paggle Spillway
Sales Revenue $580,000 $445,000
Cost of Goods Sold 300,000 180,000
Other Expenses 130,000 171,000
Net Income $150,000 $94,000
Dividends Paid 16,000 5,000
If the sale referred to above was a downstream sale, by what amount must Inventory on the consolidated balance sheet be reduced to reflect the correct balance as of the end of 2014?