Question

Top Company holds 90 percent of Bottom Company’s common stock. In the current year, Top reports sales of $800,000 and cost of goods sold of $600,000. For this same period, Bottom has sales of $300,000 and cost of goods sold of $180,000. During the current year, Bottom sold merchandise to Top for $100,000. The parent still possesses 40 percent of this inventory at the current year-end. Bottom had established the transfer price based on its normal gross profit rate. What are the consolidated sales and cost of goods sold?

Answer 1

690,000

Explanation:

given,

sale of the company = $800,000

cost of the good sold = $600,000

percentage = \dfrac{800000-600000}{800000}

= 25%

unrealized gross profit = $100000

= ( $100000× 0.40 ) × 0.25

= $ 10,000

consolidated Sales = 800000 + 300,000 - 100000

= $ 1,000,000

Consolidated COGS = $600,000 + $180,000 - 100,000 + 10,000

= 690,000