Question

Parkette, Inc., acquired a 60 percent interest in Skybox Company several years ago. During 2017, Skybox sold inventory costing $210,600 to Parkette for $270,000. A total of 20 percent of this inventory was not sold to outsiders until 2018. During 2018, Skybox sold inventory costing $163,510 to Parkette for $197,000. A total of 30 percent of this inventory was not sold to outsiders until 2019. In 2018, Parkette reported cost of goods sold of $537,500 while Skybox reported $437,500. What is the consolidated cost of goods sold in 2018

Answer 1

$776,167

Step-by-step explanation:

The computation of the consolidated cost of goods sold is shown below:-

Intra entity Gross Profit in 2017 = $270,000 - $210,600

= $59,400

Unrealized Gross Profit = Intra entity Gross Profit in 2017 × Inventory percentage

= $59,400 × 20%

= $11,880

Intra entity Gross Profit in 2018 = $197,000 - $163,510

= $33,490

Unrealized Gross Profit at 31/12/2018 = Intra entity Gross Profit in 2018 × Inventory percentage

= $33,490 × 30%

= $10,047

Consolidated cost of goods sold for 2018 = Parent COGS + Subsidiary COGS - Intra entity transfer for 2018 - Recognized 2017 deferred Gross profit + Defer unrealized gross profit for 2018

= $537,500 + $437,500 - $197,000 - $11,880 + $10,047

= $776,167

Therefore for computing the consolidated cost of goods sold we simply applied the above formula.