Exam 5: Consolidated Financial Statementsintra-Entity Asset Transactions

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. On a consolidation worksheet, what adjustment would be made for 2012 regarding the land transfer?

Strayten Corp. is a wholly owned subsidiary of Quint Inc. Quint decided to use the initial value method to account for this investment. During 2013, Strayten sold Quint goods which had cost $48,000. The selling price was $64,000. Quint still had one-eighth of the goods purchased from Strayten on hand at the end of 2013. Required: Prepare Consolidation Entry *G, which would have to be recorded at the end of 2013.

Webb Co. acquired 100% of Rand Inc. on January 5, 2013. During 2013, Webb sold goods to Rand for $2,400,000 that cost Webb $1,800,000. Rand still owned 40% of the goods at the end of the year. Cost of goods sold was $10,800,000 for Webb and $6,400,000 for Rand. What was consolidated cost of goods sold?

During 2013, Edwards Co. sold inventory to its parent company, Forsyth Corp. Forsyth still owned the entire inventory purchased at the end of 2013. Why must the gross profit on the sale be deferred when consolidated financial statements are prepared at the end of 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 total of consolidated operating expenses?

On January 1, 2013, Musial Corp. sold equipment to Matin Inc. (a wholly-owned subsidiary) for $168,000 in cash. The equipment originally cost $140,000 but had a book value of only $98,000 when transferred. On that date, the equipment had a five-year remaining life. Depreciation expense was calculated using the straight-line method. Musial earned $308,000 in net income in 2013 (not including any investment income) while Matin reported $126,000. Assume there is no amortization related to the original investment. What is consolidated net income for 2013?

Strickland Company sells inventory to its parent, Carter Company, at a profit during 2012. One-third of the inventory is sold by Carter in 2012. In the consolidation worksheet for 2012, which of the following choices would be a debit entry to eliminate unrealized intra-entity gross profit with regard to the 2012 intra-entity sales?