Exam 5: Consolidated Financial Statementsintra-Entity Asset Transactions

Gargiulo Company, a 90% owned subsidiary of Posito Corporation, sells inventory to Posito at a 25% profit on selling price. The following data are available pertaining to intra-entity purchases. Gargiulo was acquired on January 1, 2012. 2012 2013 2014 Purchases by Posito \ 8,000 \ 12,000 \ 15,000 Ending inventory on Posito's books 1,200 4,000 3,000 Assume the equity method is used. The following data are available pertaining to Gargiulo's income and dividends. Gargiulo's net income Dividends paid by Gargiulo 10,000 10,000 15,000 For consolidation purposes, what amount would be debited to cost of goods sold for the 2013 consolidation worksheet with regard to the unrealized gross profit of the 2013 intra-entity transfer of merchandise?

When comparing the difference between an upstream and downstream transfer of inventory, and using the initial value method, which of the following statements is true when there is a non-controlling interest?

Gargiulo Company, a 90% owned subsidiary of Posito Corporation, sells inventory to Posito at a 25% profit on selling price. The following data are available pertaining to intra-entity purchases. Gargiulo was acquired on January 1, 2012. 2012 2013 2014 Purchases by Posito \ 8,000 \ 12,000 \ 15,000 Ending inventory on Posito's books 1,200 4,000 3,000 Assume the equity method is used. The following data are available pertaining to Gargiulo's income and dividends. Gargiulo's net income Dividends paid by Gargiulo 10,000 10,000 15,000 Compute the non-controlling interest in Gargiulo's net income for 2013.

Wilson owned equipment with an estimated life of 10 years when it was acquired for an original cost of $80,000. The equipment had a book value of $50,000 at January 1, 2012. On January 1, 2012, Wilson realized that the useful life of the equipment was longer than originally anticipated, at ten remaining years. On April 1, 2012 Simon Company, a 90% owned subsidiary of Wilson Company, bought the equipment from Wilson for $68,250 and for depreciation purposes used the estimated remaining life as of that date. The following data are available pertaining to Simon's income and dividends: 2012 2013 2014 Net income \ 100,000 \ 120,000 \ 130,000 Dividends 40,000 50,000 60,000 Compute the gain on transfer of equipment reported by Wilson for 2012.

Fraker, Inc. owns 90 percent of Richards, Inc. and bought $200,000 of Richards' inventory in 2013. The transfer price was equal to 30 percent of the sales price. When preparing consolidated financial statements, what amount of these sales is eliminated?

Stark Company, a 90% owned subsidiary of Parker, Inc. sold land to Parker on May 1, 2012, for $80,000. The land originally cost Stark $85,000. Stark reported net income of $200,000, $180,000, and $220,000 for 2012, 2013, and 2014, respectively. Parker sold the land purchased from Stark in 2012 for $92,000 in 2014. Compute Parker's reported gain or loss relating to the land for 2014.

Gargiulo Company, a 90% owned subsidiary of Posito Corporation, sells inventory to Posito at a 25% profit on selling price. The following data are available pertaining to intra-entity purchases. Gargiulo was acquired on January 1, 2012. 2012 2013 2014 Purchases by Posito \ 8,000 \ 12,000 \ 15,000 Ending inventory on Posito's books 1,200 4,000 3,000 Assume the equity method is used. The following data are available pertaining to Gargiulo's income and dividends. Gargiulo's net income Dividends paid by Gargiulo 10,000 10,000 15,000 For consolidation purposes, what amount would be debited to cost of goods sold for the 2012 consolidation worksheet with regard to unrealized gross profit of the intra-entity transfer of merchandise?

How do upstream and downstream inventory transfers differ in their effect in a year-end consolidation?

Gargiulo Company, a 90% owned subsidiary of Posito Corporation, sells inventory to Posito at a 25% profit on selling price. The following data are available pertaining to intra-entity purchases. Gargiulo was acquired on January 1, 2012. Purchases by Posito Ending inventory on Posito's books 1,200 4,000 3,000 Assume the equity method is used. The following data are available pertaining to Gargiulo's income and dividends. Gargiulo's net income Dividends paid by Gargiulo 10,000 10,000 15,000 For consolidation purposes, what amount would be debited to cost of goods sold for the 2014 consolidation worksheet with regard to the unrealized gross profit of the 2014 intra-entity transfer of merchandise?

Gargiulo Company, a 90% owned subsidiary of Posito Corporation, sells inventory to Posito at a 25% profit on selling price. The following data are available pertaining to intra-entity purchases. Gargiulo was acquired on January 1, 2012. Purchases by Posito Ending inventory on Posito's books 1,200 4,000 3,000 Assume the equity method is used. The following data are available pertaining to Gargiulo's income and dividends. Gargiulo's net income Dividends paid by Gargiulo 10,000 10,000 15,000 For consolidation purposes, what amount would be debited to January 1 retained earnings for the 2012 consolidation worksheet entry with regard to the unrealized gross profit of the 2012 intra-entity transfer of merchandise?

Stark Company, a 90% owned subsidiary of Parker, Inc. sold land to Parker on May 1, 2012, for $80,000. The land originally cost Stark $85,000. Stark reported net income of $200,000, $180,000, and $220,000 for 2012, 2013, and 2014, respectively. Parker sold the land purchased from Stark in 2012 for $92,000 in 2014. Which of the following will be included in a consolidation entry for 2013?

On January 1, 2013, Pride, Inc. acquired 80% of the outstanding voting common stock of Strong Corp. for $364,000. There is no active market for Strong's stock. Of this payment, $28,000 was allocated to equipment (with a five-year life) that had been undervalued on Strong's books by $35,000. Any remaining excess was attributable to goodwill which has not been impaired. As of December 31, 2013, before preparing the consolidated worksheet, the financial statements appeared as follows: Pride, Inc. Strong Corp. Revenues \ 420,000 \ 280,000 Cost of goods sold (196,000) (112,000) Operating expenses (28,000) (14,000) Net income \ 196,000 \ 154,000 Retained earnings, 1/1/13 \ 420,000 \ 210,000 Net income (above) 196,000 154,000 Dividends paid 0 0 Retained earnings, 12/31/13 \ 616,000 \ 364,000 Cash and receivables \ 294,000 \ 126,000 Inventory 210,000 154,000 Investment in Strong Corp 364,000 0 Equipment (net) 616,000 Total assets \ 1,484,000 \ 700,000 Liabilities \ 588,000 \ 196,000 Common stock 280,000 140,000 Retained earnings, 12/31/13 (above) 616,000 264,000 Total liabilities and stockholders' equity \ 1,484,000 \ 700,000 During 2013, Pride bought inventory for $112,000 and sold it to Strong for $140,000. Only half of this purchase had been paid for by Strong by the end of the year. 60% of these goods were still in the company's possession on December 31, 2013. What is the consolidated total for equipment (net) at December 31, 2013?

An intra-entity sale took place whereby the transfer price was less than the book value of a depreciable asset. Which statement is true for the year following the sale?

Virginia Corp. owned all of the voting common stock of Stateside Co. Both companies use the perpetual inventory method, and Virginia decided to use the partial equity method to account for this investment. During 2012, Virginia made cash sales of $400,000 to Stateside. The gross profit rate was 30% of the selling price. By the end of 2012, Stateside had sold 75% of the goods to outside parties for $420,000 cash. Prepare any 2013 consolidation worksheet entries that would be required regarding the 2012 inventory transfer.

Stark Company, a 90% owned subsidiary of Parker, Inc. sold land to Parker on May 1, 2012, for $80,000. The land originally cost Stark $85,000. Stark reported net income of $200,000, $180,000, and $220,000 for 2012, 2013, and 2014, respectively. Parker sold the land purchased from Stark in 2012 for $92,000 in 2014. Compute Stark's reported gain or loss relating to the land for 2014.

Stiller Company, an 80% owned subsidiary of Leo Company, purchased land from Leo on March 1, 2012, for $75,000. The land originally cost Leo $60,000. Stiller reported net income of $125,000 and $140,000 for 2012 and 2013, respectively. Leo uses the equity method to account for its investment. Compute income from Stiller on Leo's books for 2013.

Flintstone Inc. acquired all of Rubble Co. on January 1, 2013. Flintstone decided to use the initial value method to account for this investment. During 2013, Flintstone sold to Rubble for $600,000 inventory with a cost of $500,000. At the end of the year 30% of the goods were still in Rubble's inventory. Required: Prepare Consolidation Entry TI for the intra-entity transfer and Consolidation Entry G for the ending inventory adjustment necessary for the consolidation worksheet at 12/31/15.

Which of the following statements is true regarding an intra-entity sale of land?

Stiller Company, an 80% owned subsidiary of Leo Company, purchased land from Leo on March 1, 2012, for $75,000. The land originally cost Leo $60,000. Stiller reported net income of $125,000 and $140,000 for 2012 and 2013, respectively. Leo uses the equity method to account for its investment. Compute income from Stiller on Leo's books for 2012.

Clemente Co. owned all of the voting common stock of Snider Co. On January 2, 2012, Clemente sold equipment to Snider for $125,000. The equipment had cost Clemente $140,000. At the time of the sale, the balance in accumulated depreciation was $40,000. The equipment had a remaining useful life of five years and a $0 salvage value. Straight-line depreciation is used by both Clemente and Snider. At what amount should the equipment (net of depreciation) be included in the consolidated balance sheet dated December 31, 2013?