Pilfer Company acquired 90 percent ownership of Scrooge Corporation in 20X7,at underlying book value.On that date,the fair value of noncontrolling interest was equal to 10 percent of the book value of Scrooge Corporation.Pilfer purchased inventory from Scrooge for $90,000 on August 20,20X8,and resold 70 percent of the inventory to unaffiliated companies on December 1,20X8,for $100,000.Scrooge produced the inventory sold to Pilfer for $67,000.The companies had no other transactions during 20X8.
-Based on the information given above,what amount of cost of goods sold will be reported in the 20X8 consolidated income statement?

Question

Quizplus · Accepted Answer

Under the equity method, Pilfer would record the cost of the inventory acquired from Scrooge at its original cost of $67,000 (since there were no indications of impairment), and the inventory sold by Pilfer would be eliminated in consolidation.

Therefore, Pilfer's cost of goods sold would only include the cost of the inventory it acquired from Scrooge, which is $67,000.

However, since Pilfer owns 90% of Scrooge, the $90,000 purchase of inventory from Scrooge would result in a $9,000 reduction in Pilfer's investment in Scrooge (reflecting the portion of inventory owned by the noncontrolling interest). This reduction would be eliminated in consolidation as well.

Therefore, the consolidated cost of goods sold would be $67,000.

Pilfer Company Acquired 90 Percent Ownership of Scrooge Corporation in 20X7,at