Top Company holds 90 percent of Bottom Company’s common stock. In the current year, Top reports...
Top Company holds 90 percent of Bottom Company’s common stock. In the current year, Top reports sales of $886,000 and cost of goods sold of $664,500. For this same period, Bottom has sales of $368,000 and cost of goods sold of $220,800. During the current year, Bottom sold merchandise to Top for $195,000. The parent still possesses 35 percent of this inventory at the current year-end. Bottom had established the transfer price based on its normal gross profit rate. What are the consolidated sales and cost of goods sold?
-
$1,059,000 and $758,550.
-
$1,059,000 and $717,600.
-
$1,059,000 and $713,050.
-
$1,022,200 and $912,600.
Homework Answers
$1,059,000 and $717,600 is the correct option.
Reason:-
Consolidated sales :-
= 886,000 + 368,000 - 195,000 = $1,059,000
Consolidated Cost of goods sold :-
Bottom gross profit ratio = (368,000 - 220,800)/368,000 = 40%
Top's inventory from Bottom = 195,000 x 35% = $68,250
Unrealized gain = 68,250 x 40% = $27,300
Cost of goods sold = 664,500 + 220,800 - (195,000 - 27,300) = $717,600
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