Use the following information to answer the question(s) below.

Pouch Corporation acquired an 80% interest in Shenley Corporation on January 1, 2014, when the book values of Shenley's assets and liabilities were equal to their fair values. The cost of the 80% interest was equal to 80% of the book value of Shenley's net assets. During 2014, Pouch sold merchandise that cost $70,000 to Shenley for $86,000. On December 31, 2014, three-fourths of the merchandise acquired from Pouch remained in Shenley's inventory. Separate incomes (investment income not included) of the two companies are as follows:

-The consolidated income statement for Pouch Corporation and subsidiary for the year ended December 31,2014 will show consolidated cost of sales of
A)$120,000.
B)$136,000.
C)$148,000.
D)$210,000.

Question

Use the following information to answer the question(s) below.

Pouch Corporation acquired an 80% interest in Shenley Corporation on January 1, 2014, when the book values of Shenley's assets and liabilities were equal to their fair values. The cost of the 80% interest was equal to 80% of the book value of Shenley's net assets. During 2014, Pouch sold merchandise that cost $70,000 to Shenley for $86,000. On December 31, 2014, three-fourths of the merchandise acquired from Pouch remained in Shenley's inventory. Separate incomes (investment income not included) of the two companies are as follows:

-The consolidated income statement for Pouch Corporation and subsidiary for the year ended December 31,2014 will show consolidated cost of sales of
A)$120,000. 
B)$136,000. 
C)$148,000. 
D)$210,000.

Quizplus · Accepted Answer

Consolidated cost of sales = Parent's cost of sales + Subsidiary's cost of sales - Intercompany sales= $100,000 + $48,000 - $12,000= $136,000

Use the Following Information to Answer the Question(s) Below