Parent Corporation owns 90 percent of Subsidiary 1 Company's stock and 75 percent of Subsidiary 2 Company's stock.During 20X8,Parent sold inventory purchased in 20X7 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 31,20X8,Subsidiary 2 sold $45,000 of inventory to a nonaffiliate for $67,000 and held $15,000 in inventory at December 31,20X8.
-Based on the information given above,what amount should be reported in the 20X8 consolidated income statement as cost of goods sold?

Question

Quizplus · Accepted Answer

The consolidated cost of goods sold should reflect the original cost of the inventory to the parent company, which is $48,000. However, since Subsidiary 2 sold $45,000 of the inventory, the cost of goods sold reported in the consolidated income statement should only reflect the cost associated with what was sold. The original cost of the $45,000 inventory sold by Subsidiary 2 to a nonaffiliate is $36,000 (since $48,000 of inventory was originally sold to Subsidiary 1 for $60,000, the cost basis remains $48,000, and the proportion of $45,000 sold by Subsidiary 2 would be calculated based on the original cost). Therefore, the consolidated cost of goods sold is $36,000.

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