Assume a parent company owns a 100% controlling interest in its long-held subsidiary. The following excerpts are from the parent’s and subsidiary’s pre-consolidation income statements for the year ending December 31, 2019: Parent Subsidiary Revenues $3,000,000 $2,000,000 Cost of goods sold (2,250,000) (1,300,000) Gross profit $750,000 $700,000 On January 1, 2019, the subsidiary held no inventories purchased from the parent. During the year ending December 31, 2019, the parent company sold $400,000 of inventory to its subsidiary. All of the parent’s sales to affiliates and non-affiliates have the same gross margin. At December 31, 2019, the subsidiary still held in its inventory $120,000 of merchandise purchased from the parent. The remaining inventory was sold to unaffiliated third-party customers during the year ended December 31, 2020. Intercompany sales, profits in ending inventory What amount of gross profit will be reported in the consolidated financial statements for the year ended December 31, 2019? $1,450,000 $1,440,000 $1,420,000 $750,000
Assume a parent company owns a 100% controlling interest in its long-held subsidiary. The following excerpts are from the parent’s and subsidiary’s pre-consolidation income statements for the year ending December 31, 2019:
| Parent | Subsidiary | |
|---|---|---|
| Revenues | $3,000,000 | $2,000,000 |
| Cost of goods sold | (2,250,000) | (1,300,000) |
| Gross profit | $750,000 | $700,000 |
On January 1, 2019, the subsidiary held no inventories purchased from the parent. During the year ending December 31, 2019, the parent company sold $400,000 of inventory to its subsidiary. All of the parent’s sales to affiliates and non-affiliates have the same gross margin. At December 31, 2019, the subsidiary still held in its inventory $120,000 of merchandise purchased from the parent. The remaining inventory was sold to unaffiliated third-party customers during the year ended December 31, 2020.
Intercompany sales, profits in ending inventory
What amount of gross profit will be reported in the consolidated financial statements for the year ended December 31, 2019?
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