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Company P and Company S are related companies subject to consolidation
Company P and Company S are related companies subject to consolidation. During the accounting period, Company P sold finished goods inventory to Company S that had a cost of goods sold of $100,000 for $250,000 on account.
Company S paid for the sale, and subsequently sold all the goods to an unrelated third party for $300,000. The consolidation entry required to eliminate the effects of this transaction will include _____.
a. a debit to sales of $250,000 and a credit to cost of goods sold of $250,000
b. a debit to sales of $300,000 and a credit to cost of goods sold of $100,000
c. A debit to sales of $250,000 and a credit to cost of goods sold of $150,000
d. a debit to sales of $300,000 and a credit to cost of goods sold for $300,000
Expert Solution
Answer: a. a debit to sales of $250,000 and a credit to cost of goods sold of $250,000.
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- The true sales in the consolidation point of view is the sale to unrelated properties worth $300,000 and the true cost of goods sold is $100,000. When P sold its goods to S, it recorded a sale of $250,000. This item should be eliminated or else the consolidated books will record a total sale of $550,000. Also, when S sold the goods to the outside party, it recorded the $250,000 as its cost of goods sold.
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