Question

During the year, Lydia Inc. rented a piece of manufacturing equipment to Mizer Inc. for $12,000 and the rent charge has all been paid for in full. Lydia Inc. and Mizer Inc. are related companies subject to consolidation. The elimination entry at the time of consolidation for this transaction would be:

Question 17 options:

	a) Debit Cash Mizer Inc. $12,000; Credit Cash Lydia Inc. $12,000
	b) Debit Rent Income $12,000; Credit Rent Expense $12,000
	c) Debit Rent Expense $12,000; Credit Rent Income $12,000
	d) No entry required as it has been paid for and will self-eliminate

On 1/1/19, Casey Co. sold inventory to Lemon, Inc. for $100,000 cash that had a cost of $40,000. Lemon, Inc. subsequently sold half that inventory during the year at a sales price of $300,000 to unrelated third parties. Casey Co. and Lemon, Inc. are related companies subject to consolidation. The portion of the elimination entry at the time of consolidation to account for any required adjustment to the cost of goods sold account would be:

Question 18 options:

	a) Debit to Cost of Goods Sold of $90,000
	b) Credit to Cost of Goods Sold of $70,000
	c) Credit to Cost of Goods Sold of $200,000
	d) Credit to Cost of Goods Sold of $40,000

Answer 1

17.

As the related companies are not seperate from each other and one cannot make transaction with itself hence transaction related to rent has to be cancelled by passing eliminating journal entry as follows;

	Debit	Credit
Rent Income	$12,000
Rent expense		$12,000

Hence option B is correct.

18.

Journal entry for eliminating intercompany sales related to unsold inventory;

Sales	$100,000
COGS		$70,000
Inventory		$30,000

Hnece, Option B is correct.

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