Question

Tara Company owns 80 percent of the common stock of Stodd Inc. In the current year, Tara reports sales of $5,000,000 and cost of goods sold of $3,500,000. For the same period, Stodd has sales of $500,000 and cost of goods sold of $400,000. During the year, Stodd sold merchandise to Tara for $40,000 at a price based on the normal markup. At the end of the year, Tara still possesses 20 percent of this inventory. Prepare the consolidation entry to defer intra-entity gross profit.

Answer 1

Explanation:

According to scenario, computation of the give data are as follows:

Stodd Inc. sales = $500,000

Cost of goods sold = $400,000

Stodd sold to Tara = $40,000

Tara Possess = 20%

= $40,000 × 20%

= $8,000

So, Cost of goods sold = 8,000 × 20% = $1,600

So, entry are as follows:

Sales A/c Dr.    $40,000

To, COGS A/c       $40,000

( Being sold merchandise to Tara is recorded)

COGS A/c Dr. $1,600

To, Inventory A/c    $1,600

( Being inventory is recorded)