Hide Corporation is a wholly owned subsidiary of Seek Company. During 2015, Hide

ID: 2558475 • Letter: H

Question

Hide Corporation is a wholly owned subsidiary of Seek Company. During 2015, Hide sold all of its production to Seek Company for $400,000, a price that includes a 25% gross profit. 2015 was the first year that such intercompany sales were made. By year-end, Seek sold, for $416,000, 80% of the goods it had purchased. The balance of the intercompany goods, $80,000, remained in the ending inventory and was adjusted to a lower fair value of $70,000. The adjustment was a charge to the cost of goods sold.

1. Determine the gross profit on sales recorded by both companies.

2. Determine the gross profit to be shown on the consolidated income statement. Please use this format to answer:

Consolidated gross profit:

Sales -

COGS to consolidated group*-

Gross profit -

*COGS is computed as follows:

purchases at cost -

less ending inventory at cost (note that cost is less than inventory)-

COGS =

Explanation / Answer

G.P.

HIDE 400000*25 =

$100000

SEEK=

SALES

$416000

LESS: COGS

400000*80%

$320000

WRITE DOWN (80000-70000)=

$10000

86000

$86000

COSOLIDATED PROFIT

$186000