Assume that a parent company owns a 100% controlling interest in its long-held subsidiary. The following excerpts are from the parent's and subsidiary's pre-consolidation income statements for the year ending December 31, 2016:
Parent Subsidiary
Revenues $3,150,000 $2,175,000
Cost of goods sold (1,890,000) (1,200,000)
Gross profit $1,260,000 $975,000
On January 1, 2013, the subsidiary held no inventories purchased from the parent. During the year ending December 31, 2013, the parent company sold $450,000 of inventory to its subsidiary. All of the parent's sales to affiliates and non-affiliates have the same gross margin. At December 31, 2013, the subsidiary still held in its inventory $135,000 of merchandise purchased from the parent. The remaining inventory was sold to unaffiliated third-party customers during the year ended December 31, 2014
What amount of revenues will be reported in the consolidated financial statements for the year ended December 31, 2014?
a. $5,325,000
b. $5,205,000
c. $4,925,000
d. $3,150.000
Answers: 1
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