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On January 1, Jarel acquired 80 percent of the outstanding voting stock of Suarez for $260,000...

On January 1, Jarel acquired 80 percent of the outstanding voting stock of Suarez for $260,000 cash consideration. The remaining 20 percent of Suarez had an acquisition-date fair value of $65,000. On January 1, Suarez possessed equipment (five-year remaining life) that was undervalued on its books by $25,000. Suarez also had developed several secret formulas that Jarel assessed at $50,000. These formulas, although not recorded on Suarez's financial records, were estimated to have a 20-year future life. As of December 31, the financial statements appeared as follows: Jarel Suarez Revenues $ (300,000 ) $ (200,000 ) Cost of goods sold 140,000 80,000 Expenses 20,000 10,000 Net income $ (140,000 ) $ (110,000 ) Retained earnings, 1/1 $ (300,000 ) $ (150,000 ) Net income (140,000 ) (110,000 ) Dividends declared 0 0 Retained earnings, 12/31 $ (440,000 ) $ (260,000 ) Cash and receivables $ 210,000 $ 90,000 Inventory 150,000 110,000 Investment in Suarez 260,000 0 Equipment (net) 440,000 300,000 Total assets $ 1,060,000 $ 500,000 Liabilities $ (420,000 ) $ (140,000 ) Common stock (200,000 ) (100,000 ) Retained earnings, 12/31 (440,000 ) (260,000 ) Total liabilities and equities $ (1,060,000 ) $ (500,000 ) Included in the above statements, Jarel sold inventory costing $80,000 to Suarez for $100,000. Of these goods, Suarez still owns 60 percent on December 31. What is the total of consolidated cost of goods sold?

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Expert Solution

Answer:
Given,Sales = $100,000 and Cost of goods Sold (COGS) = $80,0000
Suarez has not sold 60 % of Inventory at the year end.

Profit Realized   =   Sales (-) Cost of Goods Sold
                                 = $100,000 (-) $80,000
                                 = $20,000
Profit Unealized   = Profit Realized x Percent of Closing inventory
                                     =$20,000 x 60%
                                     = $12,000

Consolidated Cost of Goods sold = Jarel COGS + Suarez COGS (-) Sales + Profit Realized
                                                                    = $140,000 + $80,000 (-) $100,000 (+) $12,000
                                                                    = $132,000
Total of consolidated cost of goods sold      = $132,000

ekkarill92 answered 1 year ago
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