Question

Top Company holds 90 percent of Bottom Company’s common stock. In the current year, Top reports sales of $1,010,000 and cost of goods sold of $757,500. For this same period, Bottom has sales of $510,000 and cost of goods sold of $310,000. During the current year, Top sold merchandise to Bottom for $310,000. The subsidiary still possesses 40 percent of this inventory at the current year-end. Top had established the transfer price based on its normal gross profit rate. What are the consolidated sales and cost of goods sold?

Answer 1

Sales Consolidated $1,159,000

COGS consolidated $804,000

Step-by-step explanation:

The company will need to remove their sales between affiliates, because the goal for the consolidate statment is to represent the group performance with external entities

Sales Top $1,010,000

-sales between afilliates -$310,000

90% Bottom $459,000

Sales Consolidated $1,159,000

COGS top $757,500

-COGS sales between afiliated -$232500 (cross multiply)

90% Bottom $279,000

COGS consolidated $804,000

cross multiply:

1,010,000 generates 757,500 of COGS

310,000 generates 310,000x757,500/1,010,000 = 232,500 COGS