Top Company holds 90 percent of Bottom Company’s common stock. In the current ye
ID: 2432288 • Letter: T
Question
Top Company holds 90 percent of Bottom Company’s common stock. In the current year, Top reports sales of $880,000 and cost of goods sold of $616,000. For this same period, Bottom has sales of $380,000 and cost of goods sold of $228,000. During the current year, Top sold merchandise to Bottom for $180,000. The subsidiary still possesses 60 percent of this inventory at the current year-end. Top had established the transfer price based on its normal gross profit rate. What are the consolidated sales and cost of goods sold?
$1,080,000 and $836,800.
$1,080,000 and $728,800.
$1,042,000 and $728,800.
$1,080,000 and $696,400.
Explanation / Answer
The answer is " $1,080,000 and $696,400 "
Consolidated Sales = 880,000 + 380,000 - 180,000
= $1,080,000
Markup percentage = (880,000 - 616,000) ÷ 880,000 = 30%
Unrealised gross profit = (180,000 x 60%) x 30% = $32,400
Consolidated cost of goods sold
= 616,000 + 228,000 - 180,000 + 32,400 = $696,400