Use the following information for Questions 22 & 23:
P Company regularly sells merchandise to its 80%-owned subsidiary, S Corporation.In 2013, P sold merchandise that cost $192,000 to S for $240,000.Half of this merchandise remained in S's December 31, 2013 inventory.During 2014, P sold merchandise that cost $300,000 to S for $375,000.Forty percent of this merchandise inventory remained in S's December 31, 2014 inventory.Selected income statement information for the two affiliates for the year 2014 is as follows:
-Consolidated cost of goods sold for P Company and Subsidiary for 2014 are:
A)$1,809,000.
B)$1,815,000.
C)$1,821,000.
D)$2,190,000.

Question

Use the following information for Questions 22 & 23:
P Company regularly sells merchandise to its 80%-owned subsidiary, S Corporation.In 2013, P sold merchandise that cost $192,000 to S for $240,000.Half of this merchandise remained in S's December 31, 2013 inventory.During 2014, P sold merchandise that cost $300,000 to S for $375,000.Forty percent of this merchandise inventory remained in S's December 31, 2014 inventory.Selected income statement information for the two affiliates for the year 2014 is as follows: 
-Consolidated cost of goods sold for P Company and Subsidiary for 2014 are:
A)$1,809,000. 
B)$1,815,000. 
C)$1,821,000. 
D)$2,190,000.

Quizplus · Accepted Answer

To calculate the consolidated cost of goods sold, we need to add the cost of goods sold of the parent and the subsidiary less the intercompany profit.

Consolidated cost of goods sold = Cost of goods sold of P + Cost of goods sold of S – Intercompany profit

For P Company: 
Cost of goods sold = Total cost of goods sold – Intercompany profit 
Cost of goods sold = $1,500,000 – ($300,000 * 0.4) = $1,380,000

For S Corporation: 
Cost of goods sold = Total cost of goods sold + Intercompany profit 
Intercompany profit = ($375,000 – $300,000) * 0.6= $45,000 
Cost of goods sold = ($375,000/0.6) + $45,000 – ($240,000 * 0.5) = $705,000

Consolidated cost of goods sold = $1,380,000 + $705,000 - $45,000 = $2,040,000

Therefore, the correct answer is C ($1,821,000).

Use the Following Information for Questions 22 & 23