Question

P Company owns 80% of the outstanding stock of S Company. The 2015 sales of S Company included revenue of $390,000 consisting of consulting services billed to P Company at cost plus 30%. P Company was billed the full $390,000; of this amount, $260,000 was charged to selling expenses and $130,000 was charged to administrative expense. Prepare in general journal

Answer 1

We have to eliminate the intercompany profit
We have to calculate the cost first, therefore we divide both the expenses by 1.3 ( 30 % was profit)
260000/1.3 (selling expenses) =	200000		Profit = 260000-200000= 60000
130000/1.3 (administrative expenses) =	100000		Profit = 130000-100000= 30000
The general journal entry is:
	Debit	Credit
Service revenue	90000
selling expenses		60000
administrative expenses		30000
(being consolidation entry to eliminate intercompany profit)