Question
Pants Company and Shirt Company both produce and purchase fabric for resale each period and frequently sell to each other. Since Pants Company holds 80
Pants Company and Shirt Company both produce and purchase fabric for resale each period and frequently sell to each other. Since Pants Company holds 80 percent ownership of Shirt Company, Pants' controller compiled the following information with regard to intercompany transactions between the two companies in 20X7 and 20X8:
|
| Percent Resold to Nonaffiliate in |
|
| |||||||||
Year | Produced by | Sold to | 20X7 | 20X8 | Cost to Produce | Sale Price to Affiliate |
| ||||||
20X7 | Pants Co. | Shirt Co. | 70 | % | 30 | % | $ | 170,000 |
| $ | 200,000 |
| |
20X7 | Shirt Co. | Pants Co. | 50 | % | 30 | % |
| 50,000 |
|
| 80,000 |
| |
20X8 | Pants Co. | Shirt Co. |
|
| 75 | % |
| 35,000 |
|
| 52,000 |
| |
20X8 | Shirt Co. | Pants Co. |
|
| 40 | % |
| 230,000 |
|
| 280,000 |
| |
|
a. Give the consolidating entries required at December 31, 20X8, to eliminate the effects of the inventory transfers in preparing a full set of consolidated financial statements.
b. Compute the amount of cost of goods sold to be reported in the consolidated income statement for 20X8.
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