Planet corporation acquired 90 percent of saturn company’s voting shares of stock in 20x1. during 20x4, planet purchased 57,000 playday doghouses for $20 each and sold 42,000 of them to saturn for $25 each. saturn sold 35,000 of the doghouses to retail establishments prior to december 31, 20x4, for $40 each. both companies use perpetual inventory systems. required: a. prepare all journal entries planet recorded for the purchase of inventory and resale to saturn company in 20x4. (if no entry is required for a transaction/event, select "no journal entry required" in the first account field.)1. record the purchase of inventory2. record the sale of playday houses3. record the cost of goods soldb. prepare the journal entries saturn recorded for the purchase of inventory and resale to retail establishments in 20x4. (if no entry is required for a transaction/event, select "no journal entry required" in the first account field.)1. record the purchase of inventory on account2. record the sale of playday houses3. record the cost of goods soldc. prepare the worksheet consolidation entry(ies) needed in preparing consolidated financial statements for 20x4 to remove the effects of the intercompany sale. (if no entry is required for a transaction/event, select "no journal entry required" in the first account field.)1. record the consolidation entry

The journal entries below suffices for both the Parent (Planet) and Subsidiary (Saturn):

Recommended Journal Entries (In the Books of Planet Corporation)

DR CR

$ $

Purchases (57,000 x $20) 1,140,000

Payable/Cash 1,140,000

To record the purchase of inventory by Planet

Trade receivables (Saturn)/Cash (42,000 x $25) 1,050,000

Revenue 1,050,000

To record the sale of inventory by Planet to Saturn

Cost of Goods Sold (42,000 x $20) 840,000

Inventory 840,000

To record the cost of goods sold (Playday houses) to Saturn

DR CR

Recommended Journals Entries (In the Books of Saturn) $ $

Purchases (42,000 x $25) 1,050,000

Cash/Trade Payable 1,050,000

To record the purchase of inventory by Saturn to Planet

Trade Receivables/Cash (35,000 x $40) 1,400,000

Revenue 1,400,000

To record the sale of inventory to third parties by Saturn

Cost of Goods Sold 875,000

Inventory 875,000

To record cost of goods by Saturn to third parties

Consolidated Revenue of the Planet Group

$

Sales by Planet 1,050,000

Sales by Saturn 1,400,000

Inter-group sales (1,050,000)

Consolidated Sales 1,400,000

Explanation:

The following explanations are neccessary:

Transactions from Planet:

1. The purchase of the Playdog houses (inventory) is debited to purchases account and credited to cash or trade payable (if made on credit) for the sum of $1,140,000 (57,000 units x $20).

2. the sales of the Playdog houses from Planet to Satrun shall be debited to Trade Receivables or cash and credited to Revenue for the sum of $1,050,000 (42,000 units x $25).

3. The cost of sales shall be debited and inventory credited with the sum of $840,000 being the cost of acquiring the 42,000 sold to Saturn (42,000 *$20).

Transactions from Saturn

1. Purchases shall be debited and Cash or trade payable (if acquired on credit) for the sum of $1,050,000 (42,000 units x $25).

2. Trade receivables shall be credited and revenue credited for the sum of $1,400,000 (35,000 units x $40) to record the sales of the Playdog houses made to third parties.

3. Cost of goods sold shall be debited and inventory credited for the sum of $875,000 to record the cost of the 35,000 units sold by Saturn (35,000 units x $25).

Consolidation Adjustment

Given that Planet has a 90% interest (holding) in Saturn, Saturn then becomes a subsidiary of Planet. In this case, the transactions between Planet and Saturn will be eliminated fully on consolidation so that only transactions with third parties shall be consolidated. In view of this only the sale of 35,000 units made by Saturn to third parties qualifies as a sale. The sale of 42,000 units from Planet to Saturn is eliminated on consolidation. thus, the consolidated revenue is only $1,400,000.

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