Parkette, Inc., acquired a 60 percent interest in Skybox Company several years a
ID: 2342291 • Letter: P
Question
Parkette, Inc., acquired a 60 percent interest in Skybox Company several years ago. During 2017, Skybox sold inventory costing $134,750 to Parkette for $192,500. A total of 16 percent of this inventory was not sold to outsiders until 2018. During 2018, Skybox sold inventory costing $255,000 to Parkette for $340,000. A total of 24 percent of this inventory was not sold to outsiders until 2019. In 2018, Parkette reported cost of goods sold of $445,000 while Skybox reported $272,500. What is the consolidated cost of goods sold in 2018?
Explanation / Answer
Solution:
Intra entity Gross Profit in 2017= $192,500 - $134,750 = $57,750
Inventory remaining at year end in Parkette Inc. = 16%
Unrealized Gross Profit at 31/12/2017 = $57,750 * 16% = $9,240
Intra entity Gross Profit in 2018= $340,000 - $255,000 = $85,000
Inventroy remaining at year end = 24%
Unrealized Gross Profit at 31/12/2018 = $85,000 * 24% = $20,400
Consolidated cost of goods sold for 2018 = Parent COGS + Subsidiary COGS - Intra entity transfer for 2018 - Recognized 2017 deferred Gross profit + Defer unrealized gross profit for 2018
= $445,000 + $272,500 - $340,000 - $9,240 + $20,400 = $388,660