Question

Please provide explanation on how did we end up with the 10% refer to 14 k x 10 % when solving.

Pot Co. holds 90% of the common stock of Skillet Co. During 2021, Pot reported sales of $1,120,000 and cost of goods sold of $840,000. For this same period, Skillet had sales of $420,000 and cost of goods sold of $252,000.Included in the amounts for Pot’s sales were Pot’s sales of merchandise to Skillet for $140,000. There were no intra-entity transfers from Skillet to Pot. Intra-entity transfers had the same markup as sales to outsiders. Skillet still held 40% of the intra-entity gross profit remaining in ending inventory at the end of 2021. What are consolidated sales and cost of goods sold, respectively for 2021?

A) $1,400,000 and $952,000. B) $1,400,000 and $966,000. C) $1,540,000 and $1,078,000. D) $1,400,000 and $1,022,000. E) $1,540,000 and $1,092,000.

Answer 1

	Consolidated Sales
		Amount in $
	Sales of Pot	1,120,000
	Add: Sales of Skillet	420,000
	Less: Inter company sales	140,000
	Consolidated Sales	1,400,000
	Consolidated Cost of goods sold
		Amount in $
	Cost of goods sold of Pot	840,000
	Add: Cost of goods sold of Skillet	252,000
	Less: Inter company Cost of goods sold	140,000
	Cost of goods sold	952,000
	Add: Unrealized profit on unsold stock	14,000
	( 140,000 x 10% )
	Consolidated Cost of goods sold	966,000
	Correct answer is option B ( $ 1,400,000 & $ 966,000 ).