# FRA Question

The California Wines owns 40% of a joint venture, Western Vineyards. Vineyard’s income statement for this period is as follows: Revenues \$10,000 Less: cost of goods sold (COGS) 7,500 Gross profit \$2,500 Less: selling and administrative expenses 500 Operating income \$2,000 Less: interest expense 500 Earnings before taxes \$1,500 Less tax 600 Net income \$900 California Wines purchases 30% of the output of Vineyard. The amount of revenues, COGS, and net income of Vineyard to be included in the California Wine’s income statement under proportionate consolidation are, respectively: A) \$2,800; \$1,800; \$360. B) \$0; \$0; \$0. C) \$4,000; \$3,000; \$360. Your answer: A was correct! [(0.4)(\$10,000)] − [(0.4)(0.3)(\$10,000)] = \$2,800; [(0.4)(\$7,500)] − [(0.4)(0.3)(\$10,000)] = \$1,800; (0.4)(\$900) = \$360. Can anyone explain how they calculated COGS?

I think the transaction with Western created a COGS item for California which is on the revenue terms of Western ( NOT Western 's cost terms ). COGS of Transactions that are not related party= \$7500 - 0.3*\$10000 = \$4500 Portion that belongs to California of unrelated transactions = 0.4* \$4500 = \$1800 Related transactions ( and sales and net income ) should not be counted into the consolidation items