Question

Peter Company acquired 75 percent of Sally Company on January 1, 2019 for $712,500. During 2019, Sally purchased inventory for $35,000 and sold it to Peter for $50,000. Of this amount, Peter reported $20,000 in ending inventory in 2019 and later sold it in 2020. In 2020, Peter sold inventory it had purchased for $40,000 to Sally for $60,000. Sally sold $45,000 of this inventory in 2020. Required Prepare any necessary equity method entry(ies) on the books of Peter during 2019 made necessary by the above noted purchases of inventory.

Answer 1

Answer:

Journal entry to eliminate Sale to Peter Company

Debit : Sales Revenue (Sally Company ) $50,000

Credit : Cost of Sales (Peter Company) $50,000

Explanation:

Peter Company and Sally Company are in a group and Peter Company is the Parent whilst Sally Company is the subsidiary.

For 2019 Eliminate an Intragroup Transactions that occur between Peter Company and Sally Company.