Question

A subsidiary sells merchandise to its parent at a markup of 25% on cost. In the current year, the parent had $75,000 in merchandise purchased from the subsidiary in its beginning inventory. During the current year, the parent paid $750,000 for merchandise from the subsidiary. By year-end, the parent has sold $700,000 of merchandise purchased from the subsidiary to outside customers for $900,000.

How do the consolidation working paper eliminating entries affect cost of goods sold?

	A.	net credit of $725,000
	B.	net credit of $740,000
	C.	net credit of $765,000
	D.	net credit of $750,000

Answer 1

Answer. A - net credit of $725000

Particulars	Amount
Sales of cost of good sold	$   7,00,000.00
Add: Profit included in closing stock
125000*25/125	$       25,000.00
Adjustment to Cost good sold	$   7,25,000.00

Working for Closing stock

In the books of holding company	Amount
Opening Stock	$       75,000.00
Add: Purchase during the year	$   7,50,000.00
Less: Cost of good sold	$ -7,00,000.00
Closing Stock	$   1,25,000.00