question archive ABC Corporation owns 75 percent of XYZ Company's voting shares
ABC Corporation owns 75 percent of XYZ Company's voting shares
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ABC Corporation owns 75 percent of XYZ Company's voting shares. During 2008, ABC produced 50,000 chairs at a cost of $79 each and sold 35,000 chairs to XYZ for $90 each. XYZ sold 18,000 of the chairs to unaffiliated companies for $117 each prior to December 31, 2008, and sold the remainder in early 2009 for $130 each. Both companies use perpetual inventory systems
Based on the information given above, what amount of cost of goods sold must be eliminated from the consolidated income statement for 2008?
A. $2,765,000
B. $1,620,000
C. $1,422,000
D. $2,963,000
Based on the information given above, what amount of cost of goods sold must be eliminated from the consolidated income statement for 2009?
A. $187,000
B. $221,000
C. $1,422,000
D. $2,963,000
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Answer:
During 2008, ABC produced and sold 35000 chairs @ $90 to XYZ, out of which 18000 were sold to unaffiliated companies for $117. The cost of goods must be eliminated from consolidated income statement is $ 2,963,000 i.e 79 production cost * 35000 chairs, this cost is common in both companies , so one cost should be deleted and profit raised by affiliated companies mutually should also be deleted.
During 2009, only profit made by ABC on chairs sold in 2009 should be deleted been common in both affiliated companies. So, $187000 should be eliminated from the consolidated income statement for 2009.
