Question

In 2019 a 90% owned subsidiary had $60,000 of unrealized gains on intercompany sales to its parent. In 2020 the subsidiary sold $200,000 of goods to its parent and had $30,000 of unrealized gains. In 2020 parent reports Cost of Goods Sold of $4,000,000 and sub reports Cost of Goods Sold of $1,000,000. How much is Consolidated Cost of Goods Sold

Answer 1

Consolidated Cost of Goods Sold is $4,970,000.

Step-by-step explanation:

A 90% owned subsidiary presents a controlling interest and consolidated financial statements must be prepared by the Parent company.

In preparing consolidated financial statements, any transactions between the parent and subsidiary (Intragroup transactions) must be eliminated.

At Beginning of the year

Recognize the unrealized gains on intercompany sales as follows ;

Debit : Retained Earnings $60,000

Credit : Cost of Sales $60,000

During the year 2020

Eliminate unrealized gains on intercompany sales as follows

Debit : Cost of Sales $30,000

Credit : Inventory $30,000

Consolidated Cost of Goods Sold

To determine the Cost of Goods Sold add 100 % of Parent and 100% of Subsidiary and also remember to effect the journals above as follows :

Cost of Goods Sold = $4,000,000 + $1,000,000 - $60,000 + $30,000

= $4,970,000

Conclusion

Therefore, Consolidated Cost of Goods Sold is $4,970,000.