Question

Pot Co. holds 90% of the common stock of Skillet Co. During 2018, Pot reported sales of $1,120,000 and cost of goods sold of $840,000. For this same period, Skillet had sales of $420,000 and cost of goods sold of $252,000. Included in the amounts for Pot's sales were Pot's sales of merchandise to Skillet for $140,000. There were no intra-entity transfers from Skillet to Pot. Intra-entity transfers had the same markup as sales to outsiders. Skillet still held 40% of the intra-entity gross profit remaining in ending inventory at the end of 2018. What are consolidated sales and cost of goods sold, respectively for 2018

Answer 1

Answer:

Consolidated sales                                                                $1,400,000

Consolidated cost of goods sold                                          $966,000

Explanation:

The consolidated sales and cost of sales of the Pot Group shall be determined through the following mentioned method:

                                             Pot Co         Skillet Co            Consolidated Figures

Sales                                 $1,120,000      $420,000            $1,540,000

Less:Intra group sales                                                           ($140,000)

Consolidated sales                                                                $1,400,000

Cost of sales                    $840,000       $252,000             $1,092,000  

Less:Intra group cost of sales                                               ($140,000)

Add:Unrealized profit on intra group sales                          $14,000

(140,000*40%*25%)

Consolidated cost of goods sold                                          $966,000