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

Answer 1

Answer:

Correct answer is C

Explanation:

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.