Question

This question and the next are based on the following information. Paul and Sam (an 80% owned affiliate) reported the following income related accounts for year X1:

	Paul	Sam
Revenue	$100,000	$50,000
Cost of Sales	-$60,000	-$30,000
Depreciation	-$20,000	-$10,000
Income	$20,000	$10,000

During year X1, Sam sold 100 inventory units to Paul for $50 each that cost Sam $30. As of 12/31/X1, Paul had managed to sell 50 of the units. How much income should be recognized by P?

Select one:

a. $150,000

b. $147,500

c. $140,000

This problem is based on the same information as the preceding problem. On their consolidated income statement, which of the following amounts of consolidated Cost of sales should be recognized in year X1?

Select one:

a. $90,000

b. $88,500

c. $87,500

d. $84,000

e. None of the Above

Answer 1

	a.)	Calculation of income should be recognized by P
		Particulars	Amount in $
		Revenue of Paul	100,000
		Add: Revenue of Sam	50,000
		Less: Revenue of units sold by Paul of purchased from Sam ( 50 x 50 )	- 2,500
		Income Recognized by Paul	147,500
		Correct answer is Option b. (i.e. $ 147,500 )
	b.)	Calculation of amounts of consolidated Cost of sales should be recognized in year X1
		Particulars	Amount in $
		Cost of sales of Paul	60,000
		Add: Cost of sales of Sam	30,000
		Less: Cost of sale of units sold by Paul of purchased from Sam            ( 50 x 30 )	-1,500
		Consolidated Cost of Sales	88,500
		Correct answer is Option b. (i.e. $ 88,500 )