Elvis Company purchases inventory for $70,000 on Mar 19,2008 and sells it to Graceland Corporation for $95,000 on May 14,2008.Graceland still holds the inventory on December 31,2008,and determines that its market value (replacement cost)is $82,000 at that time.Graceland writes the inventory down from $95,000 to its lower market value of $82,000 at the end of the year.Elvis owns 75 percent of Graceland.
-Based on the information given above,what amount of cost of goods sold should be eliminated in the consolidation workpaper for 2008?

Question

Quizplus · Accepted Answer

The cost of goods sold should be eliminated in consolidation because Elvis Company and Graceland Corporation are related parties. The cost of goods sold is the cost incurred by Elvis Company to purchase the inventory, which is $70,000. The selling price to Graceland Corporation and the market price on December 31, 2008, are not relevant in this case. Therefore, the amount to be eliminated is $70,000.

Elvis Company Purchases Inventory for $70,000 on Mar 19,2008 and Sells