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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.

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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 $560,000

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