Pot Co. holds 90% of the common stock of Skillet Co. During 2021, Pot reported sales of $1,120,000 and cost of goods sold of $840,000. For this same period, Skillet had sales of $420,000 and cost of goods sold of $252,000.Included in the amounts for Pot's sales were Pot's sales for merchandise to Skillet for $140,000. There were no sales from Skillet to Pot. Intra-entity transfers had the same markup as sales to outsiders. Skillet had resold all of the intra-entity transfers (purchases) from Pot to outside parties during 2021. What are consolidated sales and cost of goods sold for 2021?
A) $1,400,000 and $952,000.
B) $1,400,000 and $1,092,000.
C) $1,540,000 and $952,000.
D) $1,400,000 and $1,232,000.
E) $1,540,000 and $1,092,000.

Question

Quizplus · Accepted Answer

Consolidated sales are calculated by adding Pot's and Skillet's sales and then subtracting intra-entity sales: $1,120,000 + $420,000 - $140,000 = $1,400,000. Consolidated cost of goods sold is calculated by adding Pot's and Skillet's cost of goods sold: $840,000 + $252,000 = $1,092,000. However, since Skillet resold all intra-entity purchases, no adjustment is needed for cost of goods sold.

Pot Co Holds 90% of the Common Stock of Skillet Co