Question

Company Big is the parent company of Company Small. In 2008 Big sold some inventory to Small for $9,000,000 at the cost of $7,000,000, by the end of 2008, Small sold 70% of the batch of inventory to outsider. In 2009 Big sold another batch of inventory to Small for $9,500,000 at the cost of $8,000,000, by the end of 2009 90% of the batch of inventory was sold to outsider. Please note that Small use FIFO. Please write down the adjusting journal entries for 2008 and 2009 separately.

Answer 1

Journal entries for

2008

1. Purchases a/c Dr $ 9000000

To Big a/c $ 9000000

(Being small purchased from big)

2. Bank a/c Dr $ 63000000

To sales a/c $ 6300000

(Being 70% of inventory sold i.e. 9000000*70%)

2009

1. Purchases a/c Dr $ 9500000

To Big a/c $ 9500000

(Being purchases made from big)

2. Bank a/c Dr $ 10980000

To sales a/c $ 10980000

(Being 90% of inventory sold i.e. 2700000+9500000 = 12200000 and 90% of 12200000 is 10980000 out of which 2700000 is inventory relating to 2008 and 8280000 is the inventory of 2009)