Question

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.

Answer 1

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)