McGraw Corp

question 21

Essay

McGraw Corp.owned all of the voting common stock of both Ritter Co.and Lawler Co.During 2009,Ritter sold inventory to Lawler.The goods had cost Ritter $65,000,and they were sold to Lawler for $100,000.At the end of 2009,Lawler still held 30% of the inventory.
Required:
How should the sale between Lawler and Ritter be accounted for by the consolidated entity?

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Definitions:

Inventory

The goods and materials held by a company for the ultimate goal of resale or manufacturing into final products.

Consolidated Retained Earnings

The portion of earnings generated by a company and its subsidiaries that is not distributed as dividends but reinvested in the business.

Statement of Financial Position

Another term for the balance sheet, detailing a company's assets, liabilities, and equity at a given point in time.

Share Capital

The funds that a company receives from selling its shares to investors; also known as equity capital.