Pot Co Holds 90% of the Common Stock of Skillet Co

question 27

Multiple Choice

Pot Co. holds 90% of the common stock of Skillet Co. During 2021, Pot reported sales of $1,120,000 and cost of goods sold of $840,000. For this same period, Skillet had sales of $420,000 and cost of goods sold of $252,000.Included in the amounts for Pot's sales were Pot's sales of merchandise to Skillet for $140,000. There were no intra-entity transfers from Skillet to Pot. Intra-entity transfers had the same markup as sales to outsiders. Skillet still held 40% of the intra-entity gross profit remaining in ending inventory at the end of 2021. What are consolidated sales and cost of goods sold, respectively for 2021?

• A) $1,400,000 and $952,000.
• B) $1,400,000 and $966,000.
• C) $1,540,000 and $1,078,000.
• D) $1,400,000 and $1,022,000.
• E) $1,540,000 and $1,092,000.

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Definitions:

Shutdown Point

The lowest point on the average variable cost curve. When price falls below the minimum point on AVC, total revenue is insufficient to cover variable costs and the firm will shut down and bear losses equal to fixed costs.

Farmer

An individual engaged in agriculture, raising living organisms for food or raw materials, typically leading the operation of farms or animal husbandry.

Price

The amount of money required to purchase a good or service.

Average Price

The sum of all the prices of all the units sold divided by the number of units.