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28 December, 15:41

Top Company holds 90 percent of Bottom Company's common stock. In the current year, Top reports sales of $1,010,000 and cost of goods sold of $757,500. For this same period, Bottom has sales of $510,000 and cost of goods sold of $310,000. During the current year, Top sold merchandise to Bottom for $310,000. The subsidiary still possesses 40 percent of this inventory at the current year-end. Top had established the transfer price based on its normal gross profit rate. What are the consolidated sales and cost of goods sold?

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  1. 28 December, 16:10
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    Sales Consolidated $1,159,000

    COGS consolidated $804,000

    Explanation:

    The company will need to remove their sales between affiliates, because the goal for the consolidate statment is to represent the group performance with external entities

    Sales Top $1,010,000

    -sales between afilliates - $310,000

    90% Bottom $459,000

    Sales Consolidated $1,159,000

    COGS top $757,500

    -COGS sales between afiliated - $232500 (cross multiply)

    90% Bottom $279,000

    COGS consolidated $804,000

    cross multiply:

    1,010,000 generates 757,500 of COGS

    310,000 generates 310,000x757,500/1,010,000 = 232,500 COGS
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