Parkette, Inc., acquired a 60 percent interest in Skybox Company several years a
ID: 2438428 • Letter: P
Question
Parkette, Inc., acquired a 60 percent interest in Skybox Company several years ago. During 2017, Skybox sold inventory costing $188,000 to Parkette for $235,000. A total of 13 percent of this inventory was not sold to outsiders until 2018. During 2018, Skybox sold inventory costing $225,320 to Parkette for $262,000. A total of 30 percent of this inventory was not sold to outsiders until 2019. In 2018, Parkette reported cost of goods sold of $577,500 while Skybox reported $365,000. What is the consolidated cost of goods sold in 2018?
Explanation / Answer
UNREALIZED GROSS PROFIT, 12/31/17
Intra-entity gross profit ($235,000 – $188,000) .................................. $47,000
Inventory remaining at year's end ....................................................... 13%
Unrealized intra-entity gross profit, 12/31/17 .................................... $6,110
UNREALIZED GROSS PROFIT, 12/31/18
Intra-entity gross profit ($262,000 – $225,320) .................................. $36,680
Inventory remaining at year's end ....................................................... 30%
Unrealized intra-entity gross profit, 12/31/18 .................................... $11,004
CONSOLIDATED COST OF GOODS SOLD
Parent balance .................................................................................... $577,500
Subsidiary balance ............................................................................ 365,000
Remove intra-entity transfer ........................................................... (262,000)
Recognize 2017 deferred gross profit .......................................... (6,110)
Defer 2018 unrealized gross profit ................................................ 11,004
Cost of goods sold .................................................................................. $685,394