Kenzie Co. acquired 70% of McCready Co. on January 1, 2021. During 2021, Kenzie made several sales of inventory to McCready. The cost and sales price of the goods were $150,000 and $220,000, respectively. McCready still owned one-fourth of the goods at the end of 2021. Consolidated cost of goods sold for 2021 was $2,280,000 due to a consolidating adjustment for intra-entity transfers less intra-entity gross profit in McCready's ending inventory.How would consolidated cost of goods sold have differed if the inventory transfers had been for the same amount and cost, but from McCready to Kenzie?
A) Consolidated cost of goods sold would have remained $2,280,000.
B) Consolidated cost of goods sold would have been more than $2,280,000 because of the controlling interest in the subsidiary.
C) Consolidated cost of goods sold would have been less than $2,280,000 because of the noncontrolling interest in the subsidiary.
D) Consolidated cost of goods sold would have been more than $2,280,000 because of the noncontrolling interest in the subsidiary.
E) The effect on consolidated cost of goods sold cannot be predicted from the information provided.

Question

Quizplus · Accepted Answer

When inventory is transferred from a subsidiary to a parent, the intra-entity profit elimination process is the same as when the transfer is from the parent to the subsidiary. Therefore, the consolidated cost of goods sold would remain the same at $2,280,000.

Kenzie Co Acquired 70% of McCready Co