[CPA Dex]

I don’t feel Yeager explained this well and so I would like someone’s advice on if I am doing this correctly. This is the method I made up and it seems to work but I would like confirmation. It has worked with the 2 questions I have found on it so far:

A sells 60 of merch to B. A cogs is 40. His profit is 20. B ending inventory is 30.

Summary:

A sales = 60

A cogs = 40

A GP % = 1/3%

B Ending Inventory = 30

With that said, all I do is multiply the GP % by the EI to derecognize the profit and this will be my EI journal entry.

The JE would be:

sales 60

EI 10

cogs 50 [plug]

dr sales 60 (this is obvious cause I always dr sales for whatever the total sales amount is)

cr EI 10 (from calculation above)

cr cogs (plug)

Thanks!

[Anonymous]

@noahchase1…you ignored the inter-company COGS. B's ending inventory is $30, which means half of the inventory (30/60) has been sold. Both the sale AND the “fake” profit should be eliminated. The “fake” profit here is $20. This “fake” profile inflates inventory on B's book by $20. If the inventory is not sold, $20 should be eliminated to bring it back to the original $40 on B's book. If some or all inventory is sold, the COGS on B's book should be adjusted accordingly. The easy way for me to remember is 1) find out the “fake” profit. 2), find out % of the inventory has been sold. 3). adjust the sold portion to COGS, the unsold portion to Inventory…The J/E should be:

Dr………Sale 60

Cr…………..COGS 40

Cr…………..COGS-B's book 10

Cr…………..Inventory-B's book 10

[Author]

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