Gentry Inc. acquired 100% of Gaspard Farms on January 5, 2010. During 2010, Gentry sold Gaspard Farms for $625,000 goods which had cost $425,000. Gaspard Farms still owned 12% of the goods at the end of the year. In 2011, Gentry sold goods with a cost of $800,000 to Gaspard Farms for $1,000,000, and Gaspard Farms still owned 10% of the goods at year-end. For 2011, cost of goods sold was $5,400,000 for Gentry and $1,200,000 for Gaspard Farms. What was consolidated cost of goods sold for 2011?
A) $6,600,000.
B) $6,604,000.
C) $5,620,000.
D) $5,596,000.
E) $5,625,000.

Question

Quizplus · Accepted Answer

Consolidated cost of goods sold is calculated by adding up the cost of goods sold from both Gentry and Gaspard Farms, and then adjusting for any intercompany transactions.

For 2011: 
Gentry's cost of goods sold was $5,400,000.
Gaspard Farms' cost of goods sold was $1,200,000.

Gentry sold $800,000 of goods to Gaspard Farms for $1,000,000, which means that Gaspard Farms still owned $80,000 (10% of $800,000) worth of goods at year-end. This needs to be eliminated from the consolidated cost of goods sold.

Therefore, the consolidated cost of goods sold for 2011 is:

$5,400,000 (Gentry) + $1,200,000 (Gaspard Farms) - $80,000 (intercompany sales) = $5,596,000.

The correct answer is D.