Question

CH 6 - Comprehension check questions Name 2. Whether inter-company inventory sales are upstream or downstream has no et feet on consolidation procedures when : a. A perpetual inventory system is used b. The goods are immediately resold to outsiders C. The subsidiary is 100% owned d. The goods are sold at cost One of the effects of eliminating intercompany profit from ending inventory is to: a. Reduce cost of goods sold b. Increase cost of goods sold c. Reduce sales revenue d. Increase gross profit 3. How much intercompany inventory profit should be eliminated from ending inventory in the "I" Consolidation process? a. Net profit on total inter-company sales during the year b. Gross profit on total inter-company sales during the year c. Gross profit on goods sold to outside parties during the year d. Gross profit on goods remaining in buyer's inventory at year-end 4. Penner Co. acquired Box of Sharp Inc. on January 5, 2018. During 2018, Penner sold goods to Sharp for $150,000 that cost Penner $112,500. Sharp sold 60% of these goods by the end of the year. Cost of goods sold was $675,000 for Penner and $400,000 for Sharp. What was consolidated cost of goods sold? a. $940,000 b. $687,500 c. $675,000 d. $1,075,000 5. P, Inc. acquired 80V of S Enterprises on January 5, 2018. During 2018, Pane sold s for $375,000 goods which had cost $255,000. S still owned 100 of the goods at the end of the year. In 2019, P sold goods with a cost of $480,000 to Sfor $600,000, and the buyer still owned 15% of the goods at year-end. For 2019, cost of goods sold was $3,240,000 for P and $720,000 for . What was consolidated cost of goods sold for 2019? a. $3,960,000 b. $3,366,000 c. $3,360,000 d. $3,966,000 6. P, Inc. acquired 80% of S Enterprises on January 5, 2018. During 2018, s sold P for $375,000 goods which had cost $255,000. P still owned 10% of the goods at the end of the year. In 2019. S sold goods with a cost of $480,000 to P for $600,000, and the buyer still owned 15% of the goods at vear-end. For 2019, cost of goods sold was $3,240,000 tor and for s. What was the amount by which Equity Investment should be debited in the I entry for profit in beginning inventory? a. $37,500 b. $9,600 c. $12,000 d. $255,000

Answer 1

1) Solution: The subsidiary is 100% owned

Explanation: When subsidiary is 100% owned then the inter-company inventory sales have no impact on the procedure of consolidation

　

2) Solution: increase cost of goods sold

Explanation: The eliminating intercompany profit from ending inventory would result to a rise in COGS

　

3) Solution: Gross profit on goods remaining in buyer's inventory at year-end

Explanation: The intercompany inventory profit that equal the gross profit on remaining goods in buyer's inventory at the end of the year need to be eliminated from ending inventory.

　

4) Solution: Consolidated cost of goods sold: 940,000

Working: 675000 + [(150,000 - 112500)*40%] + [400,000 - 150,000]

= 675000 + 15000 + 250000

= 940,000

As per policy we have to answer first four parts