Exam 5: Intercompany Profit Transactions - Inventories

Perry Instruments International purchased 75% of the outstanding common stock of Standard Systems in 1997 when the book values and fair values of Standard's assets and liabilities were equal.The cost of Perry's investment was equal to 75% of the book value of Standard's net assets.Separate company income statements for Perry and Standard for the year ended December 31,2011 are summarized as follows: During 2011,the companies began to manage their inventory differently,and worked together to keep their inventories low at each location.In doing so,they agreed to sell inventory to each other as needed at a markup of 10% of cost.Perry sold merchandise that cost $100,000 to Standard for $110,000,and Standard sold inventory that cost $80,000 to Perry for $88,000.Half of this merchandise remained in each company's inventory at December 31,2011. Required: Prepare a consolidated income statement for Perry Corporation and Subsidiary for 2011.

Use the following information to answer the question(s)below.. Pelga Company routinely receives goods from its 80%-owned subsidiary,Swede Corporation.In 2011,Swede sold merchandise that cost $80,000 to Pelga for $100,000.Half of this merchandise remained in Pelga's December 31,2011 inventory.This inventory was sold in 2012.During 2012,Swede sold merchandise that cost $160,000 to Pelga for $200,000.$62,500 of the 2012 merchandise inventory remained in Pelga's December 31,2012 inventory.Selected income statement information for the two affiliates for the year 2012 was as follows: -Consolidated cost of goods sold for Pelga and Subsidiary for 2012 were

Pfeifer Corporation acquired an 80% interest in Stern Corporation several years ago when the book values and fair values of Stern's assets and liabilities were equal.At the time of acquisition,the cost of the 80% interest was equal to 80% of the book value of Stern's net assets.Separate company income statements for Pfeifer and Stern for the year ended December 31,2011 are summarized as follows: During 2010,Pfeifer sold merchandise that cost $120,000 to Stern for $180,000.Half of this merchandise remained in Stern's inventory at December 31,2010.During 2011,Pfeifer sold merchandise that cost $150,000 to Stern for $225,000.One-third of this merchandise remained in Stern's December 31,2011 inventory. Required: Prepare a consolidated income statement for Pfeifer Corporation and Subsidiary for 2011.

The material sale of inventory items by a parent company to an affiliated company

Use the following information to answer the question(s)below.. Pelga Company routinely receives goods from its 80%-owned subsidiary,Swede Corporation.In 2011,Swede sold merchandise that cost $80,000 to Pelga for $100,000.Half of this merchandise remained in Pelga's December 31,2011 inventory.This inventory was sold in 2012.During 2012,Swede sold merchandise that cost $160,000 to Pelga for $200,000.$62,500 of the 2012 merchandise inventory remained in Pelga's December 31,2012 inventory.Selected income statement information for the two affiliates for the year 2012 was as follows: -What amount of unrealized profit did Pelga Company have at the end of 2012?

Use the following information to answer the question(s)below. Pew Corporation acquired 80% ownership of Sordid Incorporated,at a time when Pew's investment cost was equal to 80% of Sordid's book value.At the time of acquisition,the book values and fair values of Sordid's assets and liabilities were equal.Pew uses the equity method.During 2011,Pew sold goods to Sordid for $160,000 making a gross profit percentage of 20%.Half of these goods remained unsold in Sordid's inventory at the end of the year.Income statement information for Pew and Sordid for 2011 were as follows: -What is Pew's income from Sordid for 2011?

Use the following information to answer the question(s)below. Paggle Corporation owns 80% of Spillway Inc.'s common stock that was purchased at its underlying book value.At the time of purchase,the book value and fair value of Spillway's net assets were equal.The two companies report the following information for 2011 and 2012. During 2011,one company sold inventory to the other company for $50,000 which cost the transferor $40,000.As of the end of 2011,30% of the inventory was unsold.In 2012,the remaining inventory was resold outside the consolidated entity. -If the sale referred to above was a downstream sale,by what amount must Inventory on the consolidated balance sheet be reduced to reflect the correct balance as of the end of 2011?

A(n)________ sale is a sale by a parent company to a subsidiary.A(n)________ sale is a sale by a subsidiary to a parent company.

PreBuild Manufacturing acquired 100% of Shoding Industries common stock on January 1,2010,for $670,000 when the book values of Shoding's assets and liabilities were equal to their fair values and Shoding's stockholders' equity consisted of $380,000 of Capital Stock and $290,000 of Retained Earnings. PreBuild's separate income (excluding investment income from Shoding)was $870,000,$830,000 and $960,000 in 2010,2011 and 2012,respectively.PreBuild sold inventory to Shoding during 2010 at a gross profit of $50,000 and 50% remained at Shoding at the end of the year.The remaining 50% was sold in 2011.At the end of 2011,PreBuild has $54,000 of inventory received from Shoding from a sale of $180,000 which cost Shoding $150,000.There are no unrealized profits in the inventory of PreBuild or Shoding at the end of 2012.PreBuild uses the equity method in its separate books.Select financial information for Shoding follows: Required: Prepare a schedule to determine PreBuild Manufacturing's Consolidated net income for 2010,2011,and 2012.

Use the following information to answer the question(s)below. Pew Corporation acquired 80% ownership of Sordid Incorporated,at a time when Pew's investment cost was equal to 80% of Sordid's book value.At the time of acquisition,the book values and fair values of Sordid's assets and liabilities were equal.Pew uses the equity method.During 2011,Pew sold goods to Sordid for $160,000 making a gross profit percentage of 20%.Half of these goods remained unsold in Sordid's inventory at the end of the year.Income statement information for Pew and Sordid for 2011 were as follows: -On January 1,2011,Plastam Industries acquired an 80% interest in Sparta Company to assure a steady supply of Sparta's inventory that Plastam uses in its own manufacturing businesses.Sparta sold 100% of its output to Plastam during 2011 and 2012 at a markup of 125% of Sparta's cost.Plastam had $12,000 of these items remaining in its inventory at December 31,2012.If Plastam neglected to eliminate unrealized profits from all intercompany sales from Sparta,the inventory on the consolidated balance sheet at December 31,2012 was

Use the following information to answer the question(s)below. Paggle Corporation owns 80% of Spillway Inc.'s common stock that was purchased at its underlying book value.At the time of purchase,the book value and fair value of Spillway's net assets were equal.The two companies report the following information for 2011 and 2012. During 2011,one company sold inventory to the other company for $50,000 which cost the transferor $40,000.As of the end of 2011,30% of the inventory was unsold.In 2012,the remaining inventory was resold outside the consolidated entity. -For 2011,consolidated net income will be what amount if the intercompany sale was downstream?

Use the following information to answer the question(s)below. Paggle Corporation owns 80% of Spillway Inc.'s common stock that was purchased at its underlying book value.At the time of purchase,the book value and fair value of Spillway's net assets were equal.The two companies report the following information for 2011 and 2012. During 2011,one company sold inventory to the other company for $50,000 which cost the transferor $40,000.As of the end of 2011,30% of the inventory was unsold.In 2012,the remaining inventory was resold outside the consolidated entity. -If the intercompany sale was an upstream sale,the total amount of consolidated cost of goods sold for 2012 will be

Use the following information to answer the question(s)below. Paggle Corporation owns 80% of Spillway Inc.'s common stock that was purchased at its underlying book value.At the time of purchase,the book value and fair value of Spillway's net assets were equal.The two companies report the following information for 2011 and 2012. During 2011,one company sold inventory to the other company for $50,000 which cost the transferor $40,000.As of the end of 2011,30% of the inventory was unsold.In 2012,the remaining inventory was resold outside the consolidated entity. -If the sale referred to above was a downstream sale,the total sales revenue reported in the consolidated income statement for 2011 would be

Psalm Enterprises owns 90% of the outstanding voting stock of Solomon Siding,which was purchased at a cost equal to 90% of the book value of Solomon's net assets many years ago.(At the time of purchase,the fair value and book value of Solomon's net assets were equal. )Psalm purchases merchandise from Solomon at 110% above Solomon's cost.In 2012,intercompany sales from Solomon to Psalm amounted to $362,000.Unrealized profits in Psalm's December 31,2011 inventory and December 31,2012 inventory were $82,000 and $26,000,respectively.Solomon reported net income of $980,000 for 2012. Required: 1.Determine Psalm's income from Solomon for 2012. 2.In General Journal format,prepare consolidation working paper entries at December 31,2012 to eliminate the effects of the intercompany inventory sales assuming the perpetual inventory method is used.

Penguin Corporation acquired a 60% interest in Squid Corporation on January 1,2012,at a cost equal to 60% of the book value of Squid's net assets.At the time of the acquisition,the book values of Squid's assets and liabilities were equal to the fair values.Squid reports net income of $880,000 for 2012.Penguin regularly sells merchandise to Squid at 120% of Penguin's cost.The intercompany sales information for 2012 is as follows: Required: 1.Determine the unrealized profit in Squid's inventory at December 31,2012. 2.Compute Penquin's income from Squid for 2012.

Pirate Transport bought 80% of the outstanding voting stock of Seaways Shipping at book value several years ago.(At the time of purchase,the fair value and book value of Seaways' net assets were equal. )Pirate sells merchandise to Seaways at 120% above Pirate's cost.Intercompany sales from Pirate to Seaways for 2012 were $450,000.Unrealized profits in Seaways' December 31,2011 inventory and December 31,2012 inventory were $17,000 and $15,000,respectively.Seaways reported net income of $750,000 for 2012. Required: 1.Determine Pirate's income from Seaways for 2012. 2.In General Journal format,prepare consolidation working paper entries at December 31,2012 to eliminate the effects of the intercompany inventory sales assuming the perpetual inventory method is used.

On January 1,2011,Palling Corporation purchased 70% of the common stock of Sam's Storage Systems for $320,000 when Sam's had Common Stock outstanding of $100,000 and Retained Earnings of $200,000.Any excess differential was attributed to goodwill. At the end of 2011,Palling and Sam's had unrealized inventory profits from intercompany sales of $6,000 and $8,000,respectively.These year-end profit amounts were realized in 2012.At the end of 2012,Palling held inventory acquired from Sam's with a $10,000 unrealized profit.Palling reported separate income of $100,000 for 2012 and paid dividends of $30,000.Sam's reported separate income of $70,000 for 2012 and paid dividends of $20,000. Required: Compute the controlling interest share of consolidated net income for 2012.

Use the following information to answer the question(s)below.. Pelga Company routinely receives goods from its 80%-owned subsidiary,Swede Corporation.In 2011,Swede sold merchandise that cost $80,000 to Pelga for $100,000.Half of this merchandise remained in Pelga's December 31,2011 inventory.This inventory was sold in 2012.During 2012,Swede sold merchandise that cost $160,000 to Pelga for $200,000.$62,500 of the 2012 merchandise inventory remained in Pelga's December 31,2012 inventory.Selected income statement information for the two affiliates for the year 2012 was as follows: -A parent company regularly sells merchandise to its 70%-owned subsidiary.Which of the following statements describes the computation of noncontrolling interest share?

Use the following information to answer the question(s)below. Pew Corporation acquired 80% ownership of Sordid Incorporated,at a time when Pew's investment cost was equal to 80% of Sordid's book value.At the time of acquisition,the book values and fair values of Sordid's assets and liabilities were equal.Pew uses the equity method.During 2011,Pew sold goods to Sordid for $160,000 making a gross profit percentage of 20%.Half of these goods remained unsold in Sordid's inventory at the end of the year.Income statement information for Pew and Sordid for 2011 were as follows: -The 2011 consolidated income statement showed cost of goods sold of

Pastern Industries has an 80% ownership stake in Sascon Incorporated.At the time of purchase,the book value of Sascon's assets and liabilities were equal to the fair value.The cost of the 80% investment was equal to 80% of the book value of Sascon's net assets.At the end of 2011,they issued the following consolidated income statement: Shortly after the statements were issued,Pastern discovered that the 2011 intercompany sales transactions had not been properly eliminated in consolidation.In fact,Pastern had sold inventory that cost $80,000 to Sascon for $90,000,and Sascon had sold inventory that cost $50,000 to Pastern for $65,000.Half of the products from both transactions still remained in inventory at December 31,2011. Required: Prepare a corrected income statement for Pastern and Subsidiary for 2011.