P Company owns 80% of the outstanding stock of S Company. During 2014, S Company reported net income of

$525,000 and declared no dividends. At the end of the year, S Company's inventory included $487,500 in unrealized

profit on purchases from P Company. Intercompany sales for 2014 totaled $2,700,000.

Required:

Prepare in general journal form all consolidated financial statement workpaper entries necessary at the end of the

year to eliminate the effects of the 2014 intercompany sales.

Question

Business

Aiyana Wise

28 November, 03:07

P Company owns 80% of the outstanding stock of S Company. During 2014, S Company reported net income of

$525,000 and declared no dividends. At the end of the year, S Company's inventory included $487,500 in unrealized

profit on purchases from P Company. Intercompany sales for 2014 totaled $2,700,000.

Required:

Prepare in general journal form all consolidated financial statement workpaper entries necessary at the end of the

year to eliminate the effects of the 2014 intercompany sales.

+5

Answers (1)

Know the Answer?

Santos Barr · Answer 1

The Journal entries are as follows:

(a) Sales A/c Dr. $2,700,000

To purchase / cost of sales $2,700,000

[to eliminate inter-company sales]

(b) Inventory (Cost of goods sold) A/c Dr. $487,500

To Inventory - Balance sheet $487,500

[to eliminate unrealized profit) in ending inventory]