Bates Ltd Owns 60% of the Outstanding Common Shares of Sam

Multiple Choice

Bates Ltd. owns 60% of the outstanding common shares of Sam Ltd. During 20X6, sales from Sam to Bates were $200,000. Merchandise was priced to provide Sam with a gross margin of 20%. Bates's inventories contained $40,000 at December 31, 20X5, and $15,000 at December 31, 20X6, of merchandise purchased from Sam. Cost of goods sold for Bates and Sam for 20X6 on their separate-entity income statements were as follows: $$\begin{array} { | l | r | r | } \hline & \underline { \text { Bates } } & \underline { \text { Sam } } \\\hline \text { Beginning inventory } & \$ 100,000 & \$ 50,000 \\\hline \text { Purchases } & 700,000 & 200,000 \\\hline \text { Ending inventory } & \underline { ( 110,000 } & \underline { 55,000 } \\\hline \text { Cost of goods sold } & \$ \underline { 690,000 } & \$ \underline { 195,000 } \\\hline\end{array}$$
- What is cost of sales on the consolidated statement of income for 20X6?

A) $687,000
B) $680,000
C) $685,600
D) $660,000