Q1) Items 1 and 2 are based on the information given below.
Nolan owns 100 percent of capital stock of both Twill Corporation and Webb Corporation. Twill buys merchandise inventory from Webb at 140 percent of Webb's cost. In 20x0, Webb sold merchandise which had cost it $40,000 to Twill. Twill sold all of this merchandise to unrelated customers for $81,200 during 20x0. In preparing combined financial statements for 20x0, Nolan's bookkeeper disregarded common ownership of Twill and Webb.
1. What amount muts be eradicated from cost of goods sold in combined income statement for 20x0?
a. $56,000
b. $40,000
c. $24,000
d. $16,000
2. By what amount was unadjusted revenue overstated in combined income statement for 20x0?
a. $16,000
b. $40,000
c. $56,000
d. $81,200
Items 3, 4, 1nd 5 are based on information given below.
Blue Company bought 60 percent ownership of Kelly Corporation in 20x1. On May 10, 20x2, Kelly bought inventory from Blue for $60,000. Kelly sold all of the inventory to unaffiliated company for $86,000 on November 10, 20x2. Blue made inventory sold to Kelly for $47,000. Companies had no other transactions during 20x2.
3. What amount of sales will be reported in 20x2 consolidated income statement?
a. $51,600
b. $60,000
c. $86,000
d. $146,000
4. What amount of cost of goods sold will be reported in 20x2 consolidated income statement?
a. $36,000
b. $47,000
c. $60,000
d. $107,000
5. What amount will be reported as consolidated net income for 20x2?
a. $13,000
b. $26,000
c. $28,600
d. $39,000