Question

QUESTION 31 1. A subsidiary sells merchandise to its parent at a markup of 25% on cost. In the current year, the parent paid $800,000 for merchandise received from the subsidiary. By year-end, the parent had sold $625,000 of the merchandise to outside customers for $850,000, but still holds the other $175,000 in its ending inventory. Which statement is false concerning the information related to these merchandise sales, as reported on the consolidated financial statements for the current year? A. Consolidated sales are $850,000. B. Consolidated cost of goods sold is $500,000. C. Consolidated ending inventory is $140,000. D. Eliminating entries on the consolidation working paper reduce cost of goods sold by a net amount of $800,000.

Answer 1

B. Consolidated cost of goods sold is $500,000.

Step-by-step explanation:

Option B is correct because as subsidiary sells merchandise to its parent at a markup of 25% on cost, the Consolidated cost of goods sold is $500,000 ÷ (1 + markup)

The consolidated cost of goods sold = $500,000 ÷ (1 + 25%)

The consolidated cost of goods sold = $500,000 ÷ 1.25

The consolidated cost of goods sold = 400,000

Therefore option B is a false statement.