yukagin
Contributor
Joined: 03 Jun 2010
Online Status: Offline
Posts: 84
|
| Posted: 04 Feb 2011 at 00:25 | IP Logged
|
|
|
Question CPA-00496
Nolan owns 100% of the capital stock of both Twill Corp.
and Webb Corp. Twill purchases merchandise inventory
from Webb at 140% of Webb's cost. During Year 1,
merchandise that cost Webb $40,000 was sold to Twill.
Twill sold all of this merchandise to unrelated customers
for $81,200 during Year 1. In preparing combined
financial statements for Year 1, Nolan's bookkeeper
disregarded the common ownership of Twill and Webb. What
amount should be eliminated from cost of goods sold in
the combined income statement for Year 1?
a.$56,000 b.$40,000 c.$24,000 d.$16,000
Explanation
Choice "a" is correct, $56,000 elimination from cost of
goods sold.
Webb sold inventory with a cost of $40,000 to Twill at
140% of cost, or $56,000. This transaction resulted in
intercompany revenue of $56,000, intercompany COGS of
$40,000, and intercompany profit on the sale of inventory
of $16,000 ($56,000 - $40,000). All intercompany amounts
must be eliminated. Because Twill sold all of the
inventory purchased from Webb, the intercompany profit is
eliminated from Twill's cost of goods sold. The
eliminating entry is:
Dr.Intercompany revenue - Webb$56,000 Cr.Intercompany
COGS - Webb$40,000 Cr.Cost of goods sold -Twill$16,000
The total elimination from COGS is $56,000.
__________________
REG82,BEC79,FAR 5/31/11 (waiting)
|
Active Topics 
Memberlist 
Search 
Help
Register 
Login
Topic: F3 interco question
Topic Closed)
