Question

Sub sold Parent $100,000 worth of merchandise during 2016 and received cash. Deferred profit in the beginning of the year (i.e. 12/31/2015) was $18,525. Deferred profit at 12/31/2016 as $28,500. Provide the consolidation entries to eliminate the intercompany transactions.

Answer 1

in the given case sub sold to parent, it is assumed that total turnover of the company 100000 $, there is no other turnover.

a).deferred profit for the year end 31/12/2016= 28500

b).deferred profit for the year end 31/12/2016= 18525

Net profit for the year(a-b) = 9975

it is assumed that it is the profit that is rised on sale of produt to parent, so we need to eliminate the the profit. so the cost of the goods is not given so we think that the entire profit is eliminated.

Cash A/c Dr-100000

To cost Of goods sold a/c 90025

To Parent Company A/c 9975

(Being profit of the transaction is eliminated)