Question

McGraw Corp. owned all of the voting common stock of both Ritter Co. and Lawler Co. During 2018, Ritter sold inventory to Lawler. The goods had cost Ritter $65,000, and they were sold to Lawler for $100,000. At the end of 2018, Lawler still held 30% of the inventory.

Required:

How should the sale between Lawler and Ritter be accounted for in a 2018 consolidation worksheet? Show worksheet entries to support your answer.

Answer 1

General Journal	Debit	Credit
Sales	$100,000
Cost of Goods Sold		$100,000
Cost of Goods Sold[($100,000 - $65,000) × 30%]	$10,500
Inventory		$10,500