Question

Pepper Corporation owns 75 percent of Salt Company's voting shares. During 20X8, Pepper produced 50,000 chairs at a cost of $79 each and sold 35,000 chairs to Salt for $90 each. Salt sold 18,000 of the chairs to unaffiliated companies for $117 each prior to December 31, 20X8, and sold the remainder in early 20X9 to unaffiliated companies for $130 each. Both companies use perpetual inventory systems. Based on the information given above, what amount of cost of goods sold must be reported in the consolidated income statement for 20X8?
a. $2,765,000
b. $1,620,000
c. $1,422,000
d. $2,963,000

Answer 1

Answer: c. $1,422,000

Explanation:

The Cost of Goods that goes into the Consolidated income statement would be the goods that were sold to unaffiliated companies. The original cost of production would apply:

= Quantity sold to unaffiliated companies in 20X8 * Cost for Pepper

= 18,000 * 79

= $1,422,000