Question

Pure company owns 60% of simple, inc. During 2018 Pure sold inventory costing $200,000 to Simple...

Pure company owns 60% of simple, inc. During 2018 Pure sold inventory costing $200,000 to Simple for $300,000. By year-end Simple sold HALF of the product from Pure. Sales for the the companies appear below.

________Pure . Simple   

Sales 1,000,000 . 700,000

COGS (400,000) . (350,000)

Gross P 600,000 . 350,000

1. What amount is in ending inventory related to this sale on the books of Simple ?

2. On the consolidated income statement, what amount should be reported as sales revenue?

3. On the consolidated income statement, what amount should be eliminated from cost of goods sold?

If anyone could help me with this that would be amazing! It's advanced financial accounting relating to intercompany sales

Business   Accounting   
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Answer #1

Point 1:

Inventory in the hands of simple has to be valued @ cost price to Pure

Value = $ 200,000 * 50% = $100,000


Point 2:

Adjustment in Sales of Pure

Total sales = 10,00,000

(-)Goods not sold by Simple

$3,00,000 * 50 % = 1,50,000

Net sales of Pure = 8,50,000

Add: Sales of Simple = 7,00,000

Total revenue to be recorded in Cosolidated Financial statments =15,50,000

Point 3:

Cost of gods sold to be eliminated is from Pure to the extend goods not sold by Simple

COGS to be reduced = $ 200,000 * 50 % = $ 100,000

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