Question

Pie Bakery owns 60 percent of slice Products Company's stock. During 20X8. Slice produced 100,000 bags of flour, which it sold to Pie Bakery for $900,000. On December 31, 20X8, Pie had 20,000 bags of flour purchased from Slice Products on hand. Slice prices its sales at cost plus 50 percent of cost for profit. Pie, which purchased all its flour from Slice in 20X8, had no inventory on hand on January 1, 20X8. Pie Bakery reported income from its baking operations of $400,000, and Slice Products reported net income of $150,000 for 20X8. Required.
a. Compute the amount reported as cost of goods sold in the 20X8 consolidated income statement.

Answer 1

Answer:

Since no transactions are specified that were made out of the group ( i.e. Holding Company and Subsidiary) so, in consolidated income statement of 20x8, no COGS shall be shown for the transactions made between Pie and Slice Co.

Explanation:

In consolidated financial statements, we represent Holding ( Pie ) and Subsidiary ( Slice ) Companies as a single unit. Hence, the transactions made within the group are not considered in making of Consolidated financial statements.

However, both companies will show the sales and COGS in separate financial statements.