Question

Parent Co. acquired 100% of Sub, Inc. on January 1, 2019. During 2019, Parent sold goods...

Parent Co. acquired 100% of Sub, Inc. on January 1, 2019. During 2019, Parent sold goods to Sub for \$250,000 that cost Parent \$180,000. Sub still owned 40% of the goods at the end of 2019. Cost of goods sold was \$1,080,000 for Parent and \$640,000 for Sub in 2019.

Prepare all consolidation entries related to inventory and cost of goods sold for 2019.

The consolidated cost of goods sold for 2019 was ___1290000____? (show calculation for full credits)

Assuming that the remainder of the inventory was sold to third parties during 2020, prepare the 2020 consolidation entry.

1

Consolidation entries

 Particulars Debit (\$) Credit (\$) Sales 250000 To Cost of goods sold 250000 (Being elimination of inter company sales in the year) Cost of goods sold [(\$250000 - \$180000) X 40%] 28000 To merchandise inventory 28000 (Being elimination of unrealized profit from ending inventory)

2

Consolidated cost of goods sold = (Cost of goods sold for parent + Cost of goods sold for Sub + Unrealized profit - Inter company sales)
=> (\$1080000 + \$640000 + \$28000 - \$250000)
=> \$1498000

3

 Particulars Debit (\$) Credit (\$) Retained earnings 28000 To Cost of goods sold 28000 (Being previously deferred profit realized)