Question

Pluto Company owns 100 percent of the capital stock of both Saturn Corporation and Sol Corporation. Saturn purchases merchandise inventory from Sol at 125 percent of Sol's cost. During 20X8, Sol sold inventory to Saturn that it had purchased for $25,000. Saturn sold all of this merchandise to unrelated customers for $56,892 during 20X8. In preparing combined financial statements for 20X8, Pluto's bookkeeper disregarded the common ownership of Saturn and Sol. Based on the information given above, what amount should be eliminated from cost of goods sold in the combined income statement for 20X8?

Answer 1

Answer:

The amount that should be eliminated from cost of goods sold in the combined income statement for 20X8 is $31,250.

Explanation:

Amount eliminated from cost of goods sold in the combined income statement for year 2008.

saturn purchase merchandise from Venus at 125 % of sol cost.

sol sold inventory to saturn for $ 25,000

Amount should be eliminated from combined income statement

=  $25,000*125/100

= $31,250

Therefore, The amount that should be eliminated from cost of goods sold in the combined income statement for 20X8 is $31,250.