Question

On December 31, 20X2, Soda purchased inventory for $30,000 and sold it to Pop for $50,000. Pop resold $29,000 of the inventory (i.e., $29,000 of the $50,000 acquired from Soda) during 20X3 and had the remaining balance in inventory at December 31, 20X3.

During 20X3, Soda sold inventory purchased for $54,000 to Pop for $90,000, and Pop resold all but $26,000 of its purchase. On March 10, 20X3, Pop sold inventory purchased for $16,000 to Soda for $32,000. Soda sold all but $8,000 of the inventory prior to December 31, 20X3. Assume Pop uses the fully adjusted equity method, that both companies use straight-line depreciation, and that no property, plant, and equipment has been purchased since the acquisition.

Required:
a. Prepare all consolidation entries needed to prepare a full set of consolidated financial statements at December 31, 20X3, for Pop and Soda.

Answer 1

I have assumed that Soda is the holding company and Pop is the subsidiary company:

Therefore, journal entry required:

Dr. Group Retained Earnings a/c : $ 8,400
Cr. Group Inventory a/c : $ 8,400

Therefore, journal entry required:

Dr. Pop COGS a/c : $ 6,400
Cr. Group Inventory a/c : $ 6,400

( net amount is $ 10,400 - $ 4,000)