Question
Top Company holds 90 percent of Bottom Company’s common stock. In the current year, Top reports...
Top Company holds 90 percent of Bottom Company’s common stock. In the current year, Top reports sales of $908,000 and cost of goods sold of $681,000. For this same period, Bottom has sales of $379,000 and cost of goods sold of $303,200. During the current year, Bottom sold merchandise to Top for $183,000. The parent still possesses 25 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?
A)$1,066,100 and $993,350.
B)$1,104,000 and $816,450.
C)$1,104,000 and $846,950.
D)$1,104,000 and $810,350.
Answers
Answer:d (1104000 and 810350)
Explanation
Top company :
Sales= 908000
Cost of good sold =681000
Bottom company:
sales= 379000
Cost of good sold 303200
Top sold merchandise to bottom for= 183000
We will compute the cost of good sold
Gross profit= 379000-303200=75800
=75800/379000= 20%
Intra entity gross profit= 183000*25%= 45750*20%= 9150
Top COGS 681000 Bottom COGS 303200 Total COGS 984200 Intra entity transfer (183000) Intra entity GP 9150 Consolidated COGS 810350 We will compute consolidated sales
Consolidated sales =(top sales + bottom sales -intra entity transfer)
= (908000+379000-183000)= 1104000
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