Question

In: Accounting

Nordway Corporation acquired 90 percent of Olman Company’s voting shares of stock in 20X1. During 20X4,...

Nordway Corporation acquired 90 percent of Olman Company’s voting shares of stock in 20X1. During 20X4, Nordway purchased 51,000 Playday doghouses for $32 each and sold 36,000 of them to Olman for $40 each. Olman sold 29,000 of the doghouses to retail establishments prior to December 31, 20X4, for $55 each. Both companies use perpetual inventory systems.

a.Prepare all 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 the 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.

Solutions

Expert Solution

a) prepare jaurnal entries Norday recorded purchase of inventory
Particulars Debit Credit
Merchandise inventory (51000*32) $         16,32,000.00
to Cash $                      16,32,000.00
( to record the purchase of inventory )
Cash a/c Dr (36000*40) $         14,40,000.00
to sale $                      14,40,000.00
(to record the sale )
Cost of goods sold (36000*32) $         11,52,000.00
to merchandise inventory $                      11,52,000.00
( to record the cost of goods sold)
b) journal entries in the books of olman recorded purchase of inventory
particulars Debit credit
Merchandise inventory (36000*40) $         14,40,000.00
to Cash $                      14,40,000.00
( to record the purchase of inventory )
Cash a/c Dr (29000*55) $         15,95,000.00
to sale $                      15,95,000.00
(to record the sale )
Cost of goods sold (29000*40) $         11,60,000.00
to merchandise inventory $                      11,60,000.00
( to record the cost of goods sold)
C) Computation of unrealized profit
number of unit unsold unit remanning in olman inventory 36000-29000 = 7000
per unit profir added by Nordway corp 40-32 = 8
unrealised profit (7000*8) 56000
Particulars Debit Credit
sale (36000*40) $         14,40,000.00
to Cost of goods sold (29000*40)+(7000*32) $                      13,84,000.00
tto inventory (7000*8) $                            56,000.00
( To record unrealized profit)

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