Question

P Company regularly sells merchandise to its 80%-owned subsidiary, S Corporation. In 2016, P sold merchandise that cost $240,000 to S for $300,000. Half of this merchandise remained in S’s December 31, 2016 inventory. During 2017, P sold merchandise that cost $375,000 to S for $468,000. Forty percent of this merchandise inventory remained in S’s December 31, 2017 inventory. Selected income statement information for the two affiliates for the year 2017 is as follows:

		P		S
Sales Revenue		$2,250,000		$1,125,000
Cost of Goods Sold		1,800,000		937,500
Gross profit		$450,000		$187,500

Consolidated cost of goods sold for P Company and Subsidiary for 2017 are:

$2,737,500.

$2,260,500.

$2,268,000.

$2,276,700.

I need help with the elimination journal entries. I know the answer is 2,276,700.

Answer 1

ANSWER:

ANSWER IS OPTION (D) =$2,276,700.

Cost of goods sold
P co	1800000
S co.	937500
Total	2737500
Current purchase from P co.	280800
(468000*60%)
Previous purchase from P co.	150000
Profit element of last year	30000
Cost of goods sold	2276700

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