Reference no: EM133108535

Question - Sketchy Shoes is a subsidiary of Pacific Brands. Pacific routinely sells merchandise to Sketchy at a 25% markup on cost. Information on intercompany merchandise transactions is below (in thousands):

Inventory balance on Sketchy's books, purchased from Pacific Brands, January 1, 2017 $13,750

Inventory balance on Sketchy's books, purchased from Pacific Brands, December 31, 2017 14,575

Total sales revenue recorded by Pacific Brands on merchandise sales to Sketchy in 2017 550,000

Required -

a. Prepare the working paper eliminating entries related to these intercompany transactions at December 31, 2017.

b. Assume Sketchy sold merchandise acquired from Pacific Brands for $660,000 during 2017. What amounts appear on the separate books of Pacific Brands and Sketchy Shoes, relating to the intercompany merchandise transactions, for sales revenue and cost of goods sold? What are consolidated sales and cost of goods sold? Show how the eliminating entries in part a above adjust the balances reported on the separate books of the two entities to the correct consolidated balances.