[Anonymous]

Becker Question –

Hi,

I was wondering if someone can help me understand this JE. This question relates to eliminating intercompany sales. The solution provided did not go into detail on how the adjusted COGS and ending inventory was calculated for the subsidiary. Here are the info:

During Year 2, Cain purchased merchandise from Frey at an aggregate invoice price of $180,000, which included 100% markup on Frey’s cost. At Dec 31, Year 2, Cain owed Frey $86,000 on these purchases, and $36,00 of this merchandised remained in Cain’s inventory.

Dr. Sales $180,000

Cr. COGS $162,000

Cr. Inventory 18,000

The sales debit is pretty straight forward, but I’m not grasping the adjusted COGS and Inventory. Let me know if you need more info to solve it.

[Anonymous]

I believe you must eliminate the inter-company mark-up on the ending inventory. Since there was a 100% markup on all inventory, half was sold and half remains in ending inventory. So, 50% of 36,000 is 18,000. I think you plug COGS. Hope this helps. SOMEONE CORRECT ME PLEASE IF I'M TOTALLY WRONG. I don't want to mislead this person 🙂

[Author]

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