Question

Nordway Corporation acquired 90 percent of Olman Company’s voting shares of stock in 20X1. During 20X4, Nordway purchased 57,000 Playday doghouses for $26 each and sold 42,000 of them to Olman for $32 each. Olman sold all of the doghouses to retail establishments prior to December 31, 20X4, for $47 each. Both companies use perpetual inventory systems.

Required: a.Prepare the journal entries Nordway recorded for the purchase of inventory and resale to Olman Company in 20X4. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

-Record the purchase of inventory on account.

-Record the sales of the Playday doghouses.

-Record the cost of goods sold.

b.Prepare the journal entries Olman recorded for the purchase of inventory and resale to retail establishments in 20X4. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

-Record the purchase of inventory on account.

-Record the sales of the Playday doghouses.

-Record the cost of goods sold.

c.Prepare the worksheet consolidation entry(ies) needed in preparing consolidated financial statements for 20X4 to remove all effects of the intercompany sale. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

-Record the consolidation entry.

Answer 1

SOLUTION

A.

S.No.	Accounts titles and Explanation	Debit ($)	Credit ($)
1.	Merchandise Inventory	1,482,000
	Cash (57,000*$26)		1,482,000
	(To record the purchase of inventory on account)
2.	Cash	1,344,000
	Sales (42,000*$32)		1,344,000
	(To record the sales of the Playday doghouses)
3.	Cost of goods sold	1,092,000
	Inventory (42,000*$26)		1,092,000
	(To record the cost of goods sold)

B.

S.No.	Accounts titles and Explanation	Debit ($)	Credit ($)
1.	Merchandise Inventory	1,344,000
	Cash (42,000*$32)		1,344,000
	(To record the purchase of inventory on account)
2.	Cash	1,974,000
	Sales (42,000*$47)		1,974,000
	(To record the sales)
3.	Cost of goods sold	1,344,000
	Inventory		1,344,000
	(To record the cost of goods sold)

C.

S.No.	Accounts titles and Explanation	Debit ($)	Credit ($)
1.	Sales	1,344,000
	Cost of goods sold		1,344,000
	(To record the consolidation entry)