Pluto Company owns 80 percent of the common stock of Star Corporation.During the year,Pluto reported sales of $1,000,000,and Star reported sales of $500,000,including sales to Pluto of $80,000.The amount of sales that should be reported in the consolidated income statement for the year is:
A)$500,000.
B)$1,300,000.
C)$1,420,000.
D)$1,500,000.

Question

Quizplus · Accepted Answer

The consolidated income statement should show the total sales of both companies combined. Since Pluto owns 80% of Star, it should only report its share of Star's sales (80% x $500,000 = $400,000). In addition, the sales made between the two companies (i.e. the $80,000 in sales from Star to Pluto) should be eliminated to avoid double counting. Therefore, the total sales to be reported in the consolidated income statement would be $1,000,000 + $400,000 = $1,400,000. Adding back the eliminated intercompany sales of $80,000, the final answer is $1,420,000.

Pluto Company Owns 80 Percent of the Common Stock of Star