Parent Corporation owns 90 percent of Subsidiary 1 Company's stock and 75 percent of Subsidiary 2 Company's stock.During 2008,Parent sold inventory purchased in 2007 for $48,000 to Subsidiary 1 for $60,000.Subsidiary 1 then sold the inventory at its cost of $60,000 to Subsidiary 2.Prior to December 31,2008,Subsidiary 2 sold $45,000 of inventory to a nonaffiliate for $67,000 and held $15,000 in inventory at December 31,2008.
-Based on the information given above,what amount should be reported in the 2008 consolidated income statement as cost of goods sold?

Question

Quizplus · Accepted Answer

The correct answer is A because the consolidated income statement should include only the cost of goods sold by the consolidated entity, which is $36,000 (the cost of goods sold by Subsidiary 2). The cost of goods sold by Parent Corporation and Subsidiary 1 is not included in the consolidated income statement because these transactions are intercompany transactions.

Parent Corporation Owns 90 Percent of Subsidiary 1 Company's Stock