Question
Intercompany sales, no profits in ending inventory Assume a parent company owns a 100% controlling interest in its long-held subsidiary. The following excerpts are from
Intercompany sales, no profits in ending inventory
Assume a parent company owns a 100% controlling interest in its long-held subsidiary. The following excerpts are from the parents and subsidiarys pre-consolidation income statements for the year ending December 31, 2019:
On January 1, 2019, the subsidiary held no inventories purchased from the parent. During the year ending December 31, 2019, the parent company sold $500,000 of inventory to its subsidiary. All of the parents sales to affiliates and non-affiliates have the same gross margin. During 2019, the subsidiary sold to unaffiliated third party customers all of the items of inventory purchased from the parent.
What amount of gross profit will be reported in the consolidated financial statements for the year ended December 31, 2019?
the correct answer is $1,400,000. Could you show me how to get that?
Parent Subsidiary Revenues $2,800,000 $1,600,000 Cost of goods sold (1,960,000) (1,040,000) Gross profit $840,000 $560,000Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started