Virginia Corp. owned all of the voting common stock of Stateside Co. Both compan
ID: 2445991 • Letter: V
Question
Virginia Corp. owned all of the voting common stock of Stateside Co. Both companies use the perpetual inventory method, and Virginia decided to use the partial equity method to account for this investment. During 2012, Virginia made cash sales of $400,000 to Stateside. The gross profit rate was 30% of the selling price. By the end of 2012, Stateside had sold 75% of the goods to outside parties for $420,000 cash.
a, Prepare the consolidation entries that should be made at the end of 2012.
b. Prepare any 2013 consolidation worksheet entries that would be required regarding the 2012 inventory transfer.
Explanation / Answer
Virginia Sales to Stateside $400,000 Cost of Goods Sold $280,000 Profit (30% of Sales) 120000 Stateside sold the 75% of the Goods to outside Parties So, Stateside has 25% of Goods Purchased fron Virginia as Inventory. Ending Inventory of Goods Purchased from Virginia = 25% of $400000 = $100000 Profit Made by Virginia on Inventory = 30% of $100000 = $30000 So, Consolidation Entry to be passed: Inventory A/c Dr. $30,000 To Cost of Sales $30,000 Answer b) Suppose, Stateside has sold goods purchased from Stateside in 2013. It has still stock at the end of the year 2013 is of $40000. Profit Made by Virginia on Inventory = 30% of $40000 = $12000 So, Consolidation Entry to be passed: Inventory A/c Dr. $12,000 To Cost of Sales $12,000
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