Exam 5: Consolidated Financial Statements Intra-Entity Asset Transactions

Several years ago, Polar Inc. acquired an 80% interest in Icecap Co. The book values of Icecap's asset and liability accounts at that time were considered to be equal to their fair values. Polar's acquisition value corresponded to the underlying book value of Icecap so that no allocations or goodwill resulted from the transfer.The following selected account balances were from the individual financial records of these two companies as of December 31, 2021: Assume that Polar sold inventory to Icecap at a markup equal to 25% of cost. Intra-entity transfers were $130,000 in 2020 and $165,000 in 2021. Of this inventory, $39,000 of the 2020 transfers were retained and then sold by Icecap in 2021, while $55,000 of the 2021 transfers were held until 2022.Required:For the consolidated financial statements for 2021, determine the balances that would appear for the following accounts: (i) Cost of Goods Sold; (ii) Inventory; and (iii) Net income attributable to the noncontrolling interest.

Walsh Company sells inventory to its subsidiary, Fisher Company, at a profit during 2020. With respect to one-third of the inventory sold to Fisher, Walsh accounts for it using the equity method of accounting.In the consolidation worksheet for 2021, which of the following accounts would be debited to eliminate unrecognized intra-entity gross profit with regard to the 2020 intra-entity transfers?

Kenzie Co. acquired 70% of McCready Co. on January 1, 2021. During 2021, Kenzie made several sales of inventory to McCready. The cost and sales price of the goods were $150,000 and $220,000, respectively. McCready still owned one-fourth of the goods at the end of 2021. Consolidated cost of goods sold for 2021 was $2,280,000 due to a consolidating adjustment for intra-entity transfers less intra-entity gross profit in McCready's ending inventory.How would consolidated cost of goods sold have differed if the inventory transfers had been for the same amount and cost, but from McCready to Kenzie?

Anderson Company, a 90% owned subsidiary of Philbin Corporation, transfers inventory to Philbin at a 25% gross profit rate. The following data are available pertaining specifically to Philbin's intra-entity purchases from Anderson. Anderson was acquired on January 1, 2020. Assume the equity method is used. The following data are available pertaining to Anderson's income and dividends. For consolidation purposes, what amount would be debited to cost of goods sold for the 2022 consolidation worksheet with regard to the unrecognized intra-entity gross profit remaining in ending inventory with respect to the 2022 intra-entity transfer of merchandise?

Pepe, Incorporated acquired 60% of Devin Company on January 1, 2020. On that date Devin sold equipment to Pepe for $45,000. The equipment had a cost of $120,000 and accumulated depreciation of $66,000 with a remaining life of 9 years. Devin reported net income of $300,000 and $325,000 for 2020 and 2021, respectively. Pepe uses the equity method to account for its investment in Devin.What is the gain or loss on equipment recognized by Devin on its internal accounting records for 2020?

Anderson Company, a 90% owned subsidiary of Philbin Corporation, transfers inventory to Philbin at a 25% gross profit rate. The following data are available pertaining specifically to Philbin's intra-entity purchases from Anderson. Anderson was acquired on January 1, 2020. Assume the equity method is used. The following data are available pertaining to Anderson's income and dividends. Compute the equity in earnings of Anderson reported on Philbin's books for 2020.