Question

ter 9 Assignment Saved Help Save& Exit PEAR owns 60 % of the shares of Strata, which is a joint venture. During 2019, PEAR sold merchandise totaling $60,000 to Strata and recorded a 30% gross profit on these sales. At year-end, Strata's inventory contained $10,000 of items purchased from PEAR. The adjustment to consolidated cost of goods sold to eliminate intercompany profits in inventory would consist of which of the following? (Assume that the company was following proportionate consolidation for reporting joint ventures) В Multiple Choice ook erences An incresse of $3.000 to consolidated cost of goods sold A decrease of $3,000 to consolideted cost of goods soid An increase of $1.800 to consolidated cost of goods soid

Answer 1

The correct answer is: An increase of $1,800 to consolidated cost of goods sold. Since the company follows a proportionate consolidation to report the joint ventures, an increase in the cost of goods sold is recorded for $1,800 through an eliminating entry to record their share of the unrealized intercompany profits. Cost of Goods sold = $10,000 30% × 60% = $1,800