# FSA

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: Your answer: D was incorrect. The correct answer was B) \$2,800; \$1,800; \$360. [(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 Why is the COGS multiplied 10,000? shouldnt it be .4*.3*7,500?

I would think so too. Where is this question from?

No, the output is subtracted from both Rev and COGS so I look at it like \$7500- \$3000(Which is 30% of Rev)=\$4500*.4=\$1800

Even when consolidated, you have to (a) recognize the fact that 40% of their COGS has to be on your balance sheet (just as with all their other accounts). There is no correction for part of it coming from you (i.e. - the *0.7 part), because you don’t supply them with COGS! (b) recognize that some of the profit earned by the subsidiary actually represents a lowering COGS for you (since you’ve theoretically bought it at their COGS, not yours). This is the 10,000*0.3*0.4 reduction in COGS shown

parents Cogs is what subsidiay considers as Sales.

thanks folks, i prolly would have gotten this one wrong on the exam!

serf_dude Wrote: ------------------------------------------------------- > Even when consolidated, you have to > (a) recognize the fact that 40% of their COGS has > to be on your balance sheet (just as with all > their other accounts). There is no correction for > part of it coming from you (i.e. - the *0.7 part), > because you don’t supply them with COGS! > (b) recognize that some of the profit earned by > the subsidiary actually represents a lowering COGS > for you (since you’ve theoretically bought it at > their COGS, not yours). This is the 10,000*0.3*0.4 > reduction in COGS shown that’s a great explanation!