Poole Co. acquired 100% of Mullen Inc. on January 3, 2021. During 2021, Poole sold goods to Mullen for $2,500,000 that cost Poole $1,850,000. Mullen still owned 30% of the goods at the end of the year. Cost of goods sold was $11,200,000 for Poole and $6,600,000 for Mullen. What was consolidated cost of goods sold? a) $15,105,000.
b) $15,300,000.
c) $15,495,000.
d) $17,800,000.

c) $15,495,000.

Explanation:

Calculation to determine the consolidated cost of goods sold

First step is to calculate the Intra-Entity Gross Profit Deferred

Intra-Entity Gross Profit Deferred =($2,500,000 − $1,850,000)*30%

Intra-Entity Gross Profit Deferred =$650,000 × (30%)

Intra-Entity Gross Profit Deferred =$195,000

Now let calculate the Consolidated COGS

Using this formula

Consolidated COGS = Parent's COGS+Subsidiary's COGS -COGS in Intra-Entity Transfer+Intra-Entity Gross Profit Deferred

Let plug in the formula

Consolidated COGS=$11,200,000+ $6,600,000− $2,500,000+ $195,000

Consolidated COGS= $15,495,000

Therefore the consolidated cost of goods sold is

$15,495,000

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