Question

Answers provided. Please explain the calculations

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Weisman Company, a 100% owned subsidiary of Martindale Corporation, sells inventory to Martindale at a 20% profit on selling price. The following data are available pertaining to inter-company purchases by Martindale:

Inter-company sales			Unsold at year end (based on selling price)
2020:	$18,000		2020:	$4,000
2021:	$19,400		2021:	$6,000
2022:	$21,500		2022:	$8,000

Weisman’s profit numbers were $125,000, $142,000 and $265,000 for 2020, 2021, and 2022, respectively. Martindale received dividends from Weisman of $25,000 for 2020 and 2021, and $30,000 for 2022.

29.      What would be the net debit or credit to cost of goods sold on the 2021 consolidation worksheet? Answer = $19,000 credit

30.       Assume Weisman uses the equity method to account for its investment in Martindale. What would be the debit to retained earnings regarding the 2020 consolidation entry related to the unrealized inventory profit? Answer = $-0-

Answer 1

	CHANGES IN COST OF GOODS SOLD ON 2021 ON CONSOLIDATED FINANCIAL STATEMENT
ADD:	INTER COMPANY SALES DURING 2021	$                           19,400	CREDIT
ADD:	PROFIT ON OPENING UNSOLD INVENTORY	$                                800	CREDIT
LESS	PROFIT ON CLOSING UNSOLD INVENTORY	$                             1,200	DEBIT
	CHANGES IN COST OF GOODS SOLD	$                           19,000	CREDIT
YEAR	INTER COMPANY SALES(SELLING PRICE)	INTER COMPANY SALES(COST)	INTER COMPANY SALES(PROFIT)	UNSOLD INVENTORY(@SELLING PRICE)	UNSOLD INVENTORY(@COST)	UNSOLD INVENTORY(@PROFIT)
2020	$                           18,000	$                           14,400	$                             3,600	$                                         4,000	$                        3,200	$                                800
2021	$                           19,400	$                           15,520	$                             3,880	$                                         6,000	$                        4,800	$                             1,200
2022	$                           21,500	$                           17,200	$                             4,300	$                                         8,000	$                        6,400	$                             1,600