Saucon Corp owned all of the voting common stock of Lehigh C

Saucon Corp. owned all of the voting common stock of Lehigh Co. Both companies use the perpetual inventory method, and Saucon decided to use the partial equity method to account for this investment. During 2010, Saucon made cash sales of $400,000 to Lehigh. The gross profit rate was 30% of the selling price. By the end of 2010, Lehigh had sold 75% of the goods to outside parties for $420,000 cash.

Prepare journal entries for Saucon and Lehigh to record the sales/purchases during 2010?

Solution

Journal entries passed in saucon corporation

Cash A/c Dr. $400000

To sales A/c Cr. $400000

( Being goods sales to Lehigh in cash)

Gross profit A/c Dr. $120000

To profit & Loss A/c Cr. $120000

(Being gross profit transfer to profit & loss A/c)

Journal entries passed in Lehigh corporation

Debtor\'s A/c. Dr $420000

To sales A/c. Cr. $42000

(Being goods sales to debtors)

Gross profit A/c. Dr. $120000

To profit &. Loss A/c Cr. $120000

(Being gross profit transfer to profit & loss A/c)