Question

1) Puma Company owns 80% of the common stock of Smarte Company. Puma sells merchandise to Smarte at 20% above cost. During 2017 and 2018, intercompany sales amounted to $1,080,000 and $1,200,000 respectively. At the end of 2017, Smarte had one-fifth of the goods purchased that year from Puma in its ending inventory. Smarte’s 2018 ending inventory contained one-fourth of that year’s purchases from Puma. There were no intercompany sales prior to 2017.

Required:

A. Prepare in general journal form all entries necessary on the consolidated statements workpapers to eliminate the effects of the intercompany sales for both 2017 and 2018.

Answer 1

Journal entrie
date	particulars		debit	credit
2017	sale		1080000
	cost of goods sold			1036800
	inventory			43200
2018	sale		1200000
	cost of goods sold			1140000
	inventory			60000
cost of goods sold -2017
864000*20% = 864000
1080000*80% = 172800
cost of goods sold = 864000+172800 = 1036800
cost of goods sold 2018
960000*25% = 240000
1200000*75% = 900000
cost of goods sold = 240000+900000 = 1140000