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.
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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.) |
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-Record the purchase of inventory on account -Record the sales of the Playday doghouses -Record the cost of goods sold.
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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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