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Joey Co. holds a 90% ownership interest in Legoria Co and uses the equity method to...

Joey Co. holds a 90% ownership interest in Legoria Co and uses the equity method to account for its investment in Legoria Co. Each year, Legoria Co. purchases large quantities of a certain metal used in producing golf clubs. Suppose Joey Co. sold metal priced at $5,000,000 to Legoria in 2017 and at December 31, 2017, Legoria’s ending inventory includes $840,000 purchased from Joey. Joey’s markup is 20 percent of cost. All of the $840,000 of inventory on hand at year end 2017 is sold to external customers by Legoria in 2018. 1) Give the Consolidated entries needed as of December 31, 2017, to remove all effects of the intercompany transfer in preparing the 2017 Consolidated Financial Statements. 2) Assume no intercompany sales of inventory from Joey Co. To Legoria Co. in 2018. What entry(s), if any, would be needed in 2018 to remove the effects of the intercompany transfer of inventory in 2017? 3) Assume that the transactions above were upstream sales, how would the entries you recorded in parts 1 and 2 differ? You may describe in words or make the formal entries.

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Expert Solution

Down-Stream(Parent-to-Subsisdiary) sale
Original entries should have been
Joey's books
Legoria(Accounts Receivable) 840000
Sales 840000
COGS 700000
Inventory 700000
Legoria's books
Inventory 840000
Accounts Payable-Joey 840000
1. Consolidation entry in 2017
Sales(Joey) 840000
COGS(Joey) 700000
Inventory(Legoria) 140000
Accounts payable(Legoria) 840000
Accounts Receivable(Joey) 840000
2. Entry in 2018
No Further entry
Up-Stream(Subsisdiary-to-Parent) sale
Original entries should have been
Joey's books
Inventory 840000
Accounts payable 840000
Legoria's books
Accounts Receivable-Joey 840000
Sales 840000
COGS 700000
Inventory 700000
1. Consolidation entry in 2017
Sales (Legoria) 840000
COGS(Legoria) 700000
Inventory(Joey) 140000
Accounts payable(Joey) 840000
Account receivable(Legoria) 840000
2. Entry in 2018
No Further entry

ekkarill92 answered 1 year ago
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