During 200X, Papa Company sold inventory, which cost it $18,000, to its subsidiary, Sonnyco, for $27,000. At the end of 200X, Sonnyco had $9,000 of the intercompany goods still on its books. The balance had been resold to unaffiliated customers for $24,000. Which one of the following is the correct amount of profit or loss that would be recognized in the consolidated statements for 200X?
A)$6,000
B)$9,000
C)$12,000
D)$15,000
The answer is C and the explanation is “With an intercompany selling price of $27,000 and $9,000 of those goods on-hand at year end, one third of the cost from non-affiliates is still on-hand and should not be included in the cost of goods sold. That amount is $6,000 (i.e., 1/3 x $18,000 = $6,000). Therefore, the consolidated profit that should be recognized for 200X is the selling price to non-affiliates ($24,000) less the cost of that inventory from non-affiliates ($18,000 – $6,000 = $12,000), or $24,000 – $12,000 = $12,000”
I am confused…isn't the eliminating JE =
debit sales 27,000
credit cogs intercompany 18,000
credit cogs sales to customer 6,000
credit ending inventory 3,000
Why wouldn't profit be 24,000-18,000-16,000 = 0??
THANKS!!!
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