Alt Pace University Lubin School of Business Accounting 620 Intercompany Invento

Question

Alt Pace University Lubin School of Business Accounting 620 Intercompany Inventory Transfer Problem (Easy) Edgar Company acquired 70% of Kindall Company on January 1 , 2018. During 2018, Edgar made several sales of inventory to Kindall. The cost and selling price of the goods were $102,000 and $204,000, respectively. Kindall still owned one-fourth of the goods at the end of 2018. Required: What amount of gross profit should not have been recognized in the consolidated financial statements? lfoutside sales by Kindall for the s inventory sold was for S200,000, what was the gross profit that should have been recognized in the consolidated financial statements? A. C. What is the correct amount of inventory in the consolidated financial statements? D. If this was an upstream selling situation, what additional elimination entry would have to be made to eliminate the gross rofit relating to the Non- Controlling Interestholders?

Explanation / Answer

a)

Total Gross Profit = 204,000-102,000 = 102,000

Total Inventory held at year end = 1/4

Total Gross profit not to be included in CFS = 102,000/4 = 25,500

b) Cost of 3/4 of Inventory sold = 102000*3/4 = 76500

Gross profit to be recorded = 200000*76500 = 123,500

c)

Amount of Inventory = 102000/4 = 25,500

d)

Debit Credit

Profit & Loss a/c 7650

Inventory 7650 (25500*30%)

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