Reference no: EM132750370

Question - During the year ended December 31, 2019, Parent Company (the parent) sold merchandise to Subsidiary Corporation (a 90%-owned subsidiary) for a price of $32,340, at a markup of 32% of cost. Subsidiary sold merchandise acquired from Parent to outsider customers for $38,500 during 2019. Included in Subsidiary's January 1, 2019, inventories were goods acquired from Parent at a billed price of $3,036 and included in Subsidiary's December 31, 2019, inventories were goods acquired from Parent at a billed price of $2,310.

Required -

(i) Prepare the working paper eliminating entries (in journal entry format) related to the intercompany sale of merchandise for the year ended December 31, 2019.

(ii) Show how the working paper eliminating entry in part (i) adjusts cost of goods sold and ending inventory to the correct consolidated balances.

(iii) How (increase or decrease and the amount) is Parent's 2019 equity in income of Subsidiary affected by the intercompany sale of merchandise?