During the current year, a parent sold inventory priced at $800,000 to its subsi
ID: 2437704 • Letter: D
Question
During the current year, a parent sold inventory priced at $800,000 to its subsidiary, and the parent’s profits on these sales amounted to $60,000. . Here is what the parent and subsidiary report for total sales, cost of goods sold, and ending inventory at year-end (for total sales between the parent and subsidiary and to outside customers):
Parent’s Books
Subsidiary’s Books
Inventory
$ 300,000
$ 150,000
Sales revenue
5,000,000
3,500,000
Cost of goods sold
4,000,000
2,700,000
At what amounts should the year’s consolidated financial statements report these three balances?
Inventory Sales, Revenue, Cost of Goods Sold
a. $450,000 $8,500,000 $6,700,000
b. $450,000 $7,700,000 $5,900,000
c. $390,000 $7,700,000 $5,900,000
d. $150,000 $3,500,000 $1,900,000
Parent’s Books
Subsidiary’s Books
Inventory
$ 300,000
$ 150,000
Sales revenue
5,000,000
3,500,000
Cost of goods sold
4,000,000
2,700,000
Explanation / Answer
Sales between a parent and a subsidiary is not considered to be a sales while preparing consolidated financial statements.
Amounts to be reported in the consolidated financial statements will be calculated as follows:
Inventory = $300,000 + $150,000 - $60,000 = $390,000
Sales revenue = $5,000,000 + $3,500,000 - $800,000 = $7,700,000
Cost of goods sold = $4,000,000 + $2,700,000 - $800,000 = $5,900,000
Therefore,
The correct answer is c.
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