Senior Company owns 100 percent of the outstanding shares of Junior. During the

Question

Senior Company owns 100 percent of the outstanding shares of Junior. During the current year, Senior sold inventory costing $90,000 to Junior for $100,000. Junior has resold all of this merchandise to outside parties by the last day of the year. For the year, Senior reported cost of goods sold of $600,000 and Junior reported cost of goods sold of $500,000. What is the total amount reported on the consolidated income statement for cost of goods sold?

A) $1,000,000

B) $1,010,000

C) $1,090,000

D) $1,100,000

Explanation / Answer

As junior is a 100% subsidary company the total amount reported on the consolidated income statement for cost of goods sold :

Eliminate $90,000 from Senior books of accounts = $510000($600,000-$90,000)

Eliminate $100,000 from Junior books of accounts = $400000($500,000-$100,000)

In consolidation financial statements the amount to be reported is $10,00,000 after considering the sale of goods of $90,000

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