Answer:
The journal entries below suffices for both the Parent (Planet) and Subsidiary (Saturn):
Recommended Journal Entries (In the Books of Planet Corporation)
DR CR
$ $
Purchases (57,000 x $20) 1,140,000
Payable/Cash 1,140,000
To record the purchase of inventory by Planet
Trade receivables (Saturn)/Cash (42,000 x $25) 1,050,000
Revenue 1,050,000
To record the sale of inventory by Planet to Saturn
Cost of Goods Sold (42,000 x $20) 840,000
Inventory 840,000
To record the cost of goods sold (Playday houses) to Saturn
DR CR
Recommended Journals Entries (In the Books of Saturn) $ $
Purchases (42,000 x $25) 1,050,000
Cash/Trade Payable 1,050,000
To record the purchase of inventory by Saturn to Planet
Trade Receivables/Cash (35,000 x $40) 1,400,000
Revenue 1,400,000
To record the sale of inventory to third parties by Saturn
Cost of Goods Sold 875,000
Inventory 875,000
To record cost of goods by Saturn to third parties
Consolidated Revenue of the Planet Group
$
Sales by Planet 1,050,000
Sales by Saturn 1,400,000
Inter-group sales (1,050,000)
Consolidated Sales 1,400,000
Explanation:
The following explanations are neccessary:
Transactions from Planet:
1. The purchase of the Playdog houses (inventory) is debited to purchases account and credited to cash or trade payable (if made on credit) for the sum of $1,140,000 (57,000 units x $20).
2. the sales of the Playdog houses from Planet to Satrun shall be debited to Trade Receivables or cash and credited to Revenue for the sum of $1,050,000 (42,000 units x $25).
3. The cost of sales shall be debited and inventory credited with the sum of $840,000 being the cost of acquiring the 42,000 sold to Saturn (42,000 *$20).
Transactions from Saturn
1. Purchases shall be debited and Cash or trade payable (if acquired on credit) for the sum of $1,050,000 (42,000 units x $25).
2. Trade receivables shall be credited and revenue credited for the sum of $1,400,000 (35,000 units x $40) to record the sales of the Playdog houses made to third parties.
3. Cost of goods sold shall be debited and inventory credited for the sum of $875,000 to record the cost of the 35,000 units sold by Saturn (35,000 units x $25).
Consolidation Adjustment
Given that Planet has a 90% interest (holding) in Saturn, Saturn then becomes a subsidiary of Planet. In this case, the transactions between Planet and Saturn will be eliminated fully on consolidation so that only transactions with third parties shall be consolidated. In view of this only the sale of 35,000 units made by Saturn to third parties qualifies as a sale. The sale of 42,000 units from Planet to Saturn is eliminated on consolidation. thus, the consolidated revenue is only $1,400,000.
