Question

Planet Corporation acquired 90 percent of Saturn Company’s voting shares of stock in 20X1. During 20X4, Planet purchased 57,000 Playday doghouses for $20 each and sold 42,000 of them to Saturn for $25 each. Saturn sold 35,000 of the doghouses to retail establishments prior to December 31, 20X4, for $40 each. Both companies use perpetual inventory systems.

Required:
a. Prepare all journal entries Planet recorded for the purchase of inventory and resale to Saturn Company in 20X4. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

1. Record the purchase of inventory

2. Record the sale of playday houses

3. Record the cost of goods sold

b. Prepare the journal entries Saturn recorded for the purchase of inventory and resale to retail establishments in 20X4. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

1. Record the purchase of inventory on account

2. Record the sale of playday houses

3. Record the cost of goods sold

c. Prepare the worksheet consolidation entry(ies) needed in preparing consolidated financial statements for 20X4 to remove the effects of the intercompany sale. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

1. Record the consolidation entry

Answer 1

a.  journal entries Planet recorded for the purchase of inventory and resale to Saturn Company in 20X4.

Sl. no	Particulars	Debit (in $)	Credit (in $)
1	Inventory	1,140,000
	Cash		1,140,000
	to Record the purchase of inventory (57,000*20)
2	Intercompany accounts receiveable	1,050,000
	Intercompany sales		1,050,000
	to record the sale of playday houses to Saturn
	(42,000*25)
3	Cost of goods sold	840,000
	Inventories		840,000
	Record the cost of goods sold(42,000*20)

b. journal entries Saturn recorded for the purchase of inventory and resale to retail establishments in 20X4

Sl. no	Particulars	debit(in $)	credit(in $)
1	Inventory	1,050,000
	Intercompany purchases from Planet		1,050,000
	Record the purchase of inventory on account(42,000*25)
2	Accounts receivable	1,400,000
	sales		1,400,000
	Record the sale of playday houses(35000*40)
3	Cost of goods sold	875,000
	Inventories		875,000
	Record the cost of goods sold(35,000*25)

As per the answering policy first 4 questions are answered including subparts.