Question

Xanadu Company, a 100% owned subsidiary of Richland Corporation, sells inventory to Robertson at a 30% profit on selling price. The following data are available pertaining to inter-company purchases by Robertson:

Inter-company sales			Unsold at year end (based on selling price)
2016:	$17,600		2016:	$3,200
2017:	$24,300		2017:	$5,700
2018:	$27,000		2018:	$4,800

Xanadu’s profit numbers were $113,000, $204,000 and $225,600 for 2016, 2017, and 2018, respectively. Richland received dividends from Xanadu of $21,000 for 2016 and 2017, and $25,000 for 2018.

1. What would be the net debit or credit to cost of goods sold on the 2017 consolidation worksheet?

a.   $24,300 credit

b. $23,550 credit

c.   $25,050 credit

d.   $    750 debit

Answer 1

Years	Intercompany sales	Unsold at selling price	Unrealized profit on inventory (unsold at selling price * 30%)
2016	17600	3200	960
2017	24300	5700	1710
Net treatment to cost of goods sold
Unrealized profit on ending inventory		1710	Debit
Less: unrealized profit on beginning inventory		-960	Credit
Net impact on cost of goods sold for year 2017 consolidation worksheet		750	Debit
Correct answer is D		750 debit