Asked by
Xavier Baldwin
on Dec 01, 2024Verified
At the end of 20X7, Mallard still had $40,000 of goods purchased from Teal in its inventory and Teal had $50,000 of goods purchased from Mallard in its inventory. Both companies had gross margins of 50% in their sales of goods to each other and both companies sold these goods in 20X8. What journal entry should be made for Mallard's 20X8 consolidated financial statements with respect to the goods purchased from Teal that were still in Mallard's opening inventory?
A) DR Opening retained earnings 15,000 CR Opening NCI 5,000 CR Cost of sales 20,000\begin{array} { | c | c | } \hline \text { DR Opening retained earnings } & 15,000 \\\hline \text { CR Opening NCI } & 5,000 \\\hline \text { CR Cost of sales } & 20,000 \\\hline\end{array} DR Opening retained earnings CR Opening NCI CR Cost of sales 15,0005,00020,000
B) DR Opening retained earnings 30,000 CR Opening NCI 10,000 CR Cost of sales 40,000\begin{array} { | c | c | } \hline \text { DR Opening retained earnings } & 30,000 \\\hline \text { CR Opening NCI } & 10,000 \\\hline \text { CR Cost of sales } & 40,000 \\\hline\end{array} DR Opening retained earnings CR Opening NCI CR Cost of sales 30,00010,00040,000
C) DR Opening retained earnings 40,000 CR Cost of sales 40,000\begin{array} { | c | c | } \hline \text { DR Opening retained earnings } & 40,000 \\\hline \text { CR Cost of sales } & 40,000 \\\hline\end{array} DR Opening retained earnings CR Cost of sales 40,00040,000
D) No adjustment is required as the profits have been realized.
Gross Margins
A company's revenue minus its cost of goods sold, expressed as a percentage, indicating the percentage of sales revenue that turns into profit.
Opening Inventory
The value of a company's inventory at the beginning of its accounting period, which includes raw materials, work-in-progress, and finished goods ready for sale.
- Apply the concept of unrealized profit or loss elimination in intercompany transactions.
Verified Answer
JA
Learning Objectives
- Apply the concept of unrealized profit or loss elimination in intercompany transactions.