Question

Perez owns 70% of Junior, Inc. During the year just ended, Perez sold goods to Junior for $542,149 with a 42% gross profit. Junior sold all of these goods during the year. In its consolidated financial statements for the year, by what amount should the Sales and Cost of Goods Sold line be adjusted for this transaction? (use a plus sign for an increase and a minus sign for a decrease).

Answer 1

Since the Perez owns 70 % of Junior Inc., so it means thier consolidation financial statements will be prepared. In the consolidated financial statements inter company transactions are to be eliminated. Since Perez sold goods to junior for $ 542149, so it will be included in the sales of Perez and Junior inc. further has sold all those goods to outside, so theese are also included in the cost of goods sold of Junior inc. So while preparing the consolidated financial statements, this transaction will be eliminated by reducing sales by -$542149 and cost of goods sold by - $542149

Thus the final answer

Sales will be adjusted by - $ 542149

Cost of goods sold will be adjusted by - $ 542149