[Anonymous]

Ahm Corp. owns 90% of Bee Corp.’s common stock and 80% of Cee Corp.’s common stock. The remaining common shares of Bee and Cee are owned by their respective employees. Bee sells exclusively to Cee, Cee buys exclusively from Bee, and Cee sells exclusively to unrelated companies. Selected Year 1 information for Bee and Cee follows:

Bee Corp. Cee Corp.

Sales $ 130,000 $ 91,000

Cost of sales 100,000 65,000

Beginning inventory None None

Ending inventory None 65,000

What amount should be reported as gross profit in Bee and Cee’s combined income statement for the year ended December 31, Year 1?

a.

$47,800

b.

$41,000

c.

$56,000

d.

$26,000

The correct answer is B. It’s sales less cost of goods sold = $56. But another $15 is deducted. I can’t figure out why…

[mla1169]

Since only half of the sales to cee corp were resold (cee's ending inventory was 65k) then only half of bee's sales count on the consolidated statement. Therefore bee's gross profit is $15k (65k-50k COGS) and cee's gross profit is 26k (91k-65k) for a total of 41k.

FAR- 77
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BEC -75

Massachusetts CPA (non reporting) since 3/12.

[Anonymous]

Thank you so much, mla1169.

[knicks92]

Cee buys exclusively from Bee, so why isnt it eliminated when consolidating the financial statements?

Tough times don't last. Tough people do.

B: 88
A: 77
R: 89
F:

[Anonymous]

@knicks92 – Like you, I eliminated the profit from Bee. The other side of that elimination was $30,000 of cost that Cee paid to Bee. Since half was still in inventory, I reduced inventory by $15,000 and COGS by the other $15,000. Gets to the same answer.

[Anonymous]

@bouttime…. i was able to figure it out. Just took a long time to think. I basically just excluded half of Bee's sales and COGS because Cee only sold half of the inventory it got from Bee/still had half of it in it's ending inventory. So 91+65=156 sales – 50+65= 115 COGS equals 41. Dont know if my way is acceptable but hopefully it is

[Anonymous]

Or else you can solve this question as considering COGS of the Bees as Cees since they are related party.

91K sales

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>Cees company sales

50K COGS

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> Cees taking Bees COGS

41K profit

[Author]

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