The reported sales did not include any intra-entity sales. In addition to the reported amounts, there were intra-entity sales from Pot to Skillet in the amount of $140,000. There were no sales from Skillet to Pot. Intra-entity sales had the same markup as sales to outsiders. Skillet still had 40% of the intra-entity sales as inventory at the end of 2011. What are consolidated sales and cost of goods sold for 2011?
A) $1,400,000 and $1,071,000.
B) $1,400,000 and $966,000.
C) $1,540,000 and $1,078,000.
D) $1,400,000 and $1,022,000.
E) $1,540,000 and $1,092,000.

Question

Quizplus · Accepted Answer

Consolidated sales exclude intra-entity sales, so they remain $1,400,000. The cost of goods sold is adjusted for the unrealized profit in ending inventory from intra-entity sales. The unrealized profit is $140,000 * 40% = $56,000. If the markup is the same as sales to outsiders, the cost of goods sold is reduced by this unrealized profit, resulting in $1,071,000.

The Reported Sales Did Not Include Any Intra-Entity Sales