Golden Company owns 70% of the voting common stock of Silver Company. At the beg

Question

Golden Company owns 70% of the voting common stock of Silver Company. At the beginning of 2016, Silver's merchandise inventory included merchandise that was purchased from Golden in the prior year for $10,000 (the cost of that merchandise to Golden was $8,000). During 2016, Silver purchased merchandise from Golden for $32,000 (the cost of which to Golden was $22,000). At the end of 2016, Silver's merchandise inventory included merchandise purchased from Golden for $15,000 (the cost of which to Golden was $12,000) Internally generated income for 2016 was $144,000 for Golden and $80,000 for Silver In the consolidation worksheet for 2016, what is the entry required to eliminate the effect of intercompany sales of merchandise on beginning inventory? a. Debit Retained Earnings-Golden $1,400, Debit Retained Earnings-Silver $600, Credit Cost of Goods b. Debit Retained Earnings - Golden $1,400, Debit Retained Earnings -Silver $600, Credit Inventory c. Debit Retained Earnings-Golden $2,000, Credit Inventory $2,000 Sold $2,000 $2,000 Debit Retained Earnings-Golden $2,000, Credit Cost of Goods Sold $2,000 d. In the consolidation worksheet for 2016, what is the entry required to eliminate the effect of intercompany sales of merchandise during the year? a. b. c. d. Debit Sales $22,000, Credit Cost of Goods Sold $22,000 Debit Sales $10,000, Credit Cost of Goods Sold $10,000 Debit Sales $32,000, Credit Cost of Goods Sold $32,000 None of these

Explanation / Answer

1) Since the inventory is already sold, we will debit retained earnings for Golden for $1,400 and for Silver for $600. Cost of Goods sold will be credited for $2,000. Hence, Option A is correct.

2) To eliminate the effect of intercompany sales, we need to debit sales and credit cost of goods sold. Hence, Option C is correct.

3) Debit retained earnings – Golden $3,000. Hence, Option C is correct.

Please post remaining questions separately as only one question per post is allowed. However, I've already answered 3 subparts.

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