Exam 5: Intercompany Profit Transactions - Inventories

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 2014,they issued the following consolidated income statement: Shortly after the statements were issued,Pastern discovered that the 2014 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 31,2014. Required: Prepare a corrected income statement for Pastern and Subsidiary for 2014.

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 2014,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 2014 were as follows: -On January 1,2014,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 2014 and 2015 at a markup of 125% of Sparta's cost.Plastam had $12,000 of these items remaining in its inventory at December 31,2015.If Plastam neglected to eliminate unrealized profits from all intercompany sales from Sparta,the inventory on the consolidated balance sheet at December 31,2015 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 2014 and 2015. During 2014,one company sold inventory to the other company for $50,000 which cost the transferor $40,000.As of the end of 2014,30% of the inventory was unsold.In 2015,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 2014?

Plover Corporation acquired 80% of Sink Inc.equity on January 1,2013,when the book values of Sink's assets and liabilities were equal to their fair values.The cost of the investment was equal to 80% of the book value of Sink's net assets. Plover separate income (excluding Sink)was $1,800,000,$1,700,000 and $1,900,000 in 2013,2014 and 2015 respectively.Plover sold inventory to Sink during 2013 at a gross profit of $48,000 and one quarter remained at Sink at the end of the year.The remaining 25 percent was sold in 2014.At the end of 2014,Plover has $25,000 of inventory received from Sink from a sale of $100,000 which cost Sink $80,000.There are no unrealized profits in the inventory of Plover or Sink at the end of 2015.Plover uses the equity method in its separate books.Select financial information for Sink follows: Required: Prepare a schedule to determine the controlling interest share of the consolidated net income for 2013,2014,and 2015.

Pittle Corporation acquired a 80% interest in Seel Corporation at a cost equal to 80% of the book value of Seel's net assets several years ago.At the time of purchase,the fair value and book value of Seel's assets and liabilities were equal.Pittle purchases its entire inventory from Seel at 150% of Seel's cost.During 2014,Seel sold $490,000 of merchandise to Pittle.Pittle's beginning and ending inventories for 2014 were $72,000 and $66,000,respectively.Income statement information for both companies for 2014 is as follows: Required: Prepare a consolidated income statement for Pittle Corporation and Subsidiary for 2014.

Proman Manufacturing owns a 90% interest in Sipp Company,purchased at a time when the book values of Sipp's recorded assets and liabilities were equal to fair values.During 2014,Sipp sold merchandise to Proman for $80,000 at a 20% gross profit.At December 31,2014,25% of this merchandise is still in Proman's inventory.Separate incomes for Proman and Sipp are summarized as follows: Required: Prepare a consolidated income statement for 2014 for Proman and subsidiary.

Use the following information to answer the question(s)below.. Pelga Company routinely receives goods from its 80%-owned subsidiary,Swede Corporation.In 2014,Swede sold merchandise that cost $80,000 to Pelga for $100,000.Half of this merchandise remained in Pelga's December 31,2014 inventory.This inventory was sold in 2015.During 2015,Swede sold merchandise that cost $160,000 to Pelga for $200,000.$62,500 of the 2015 merchandise inventory remained in Pelga's December 31,2015 inventory.Selected income statement information for the two affiliates for the year 2015 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?

Paulee Corporation paid $24,800 for an 80% interest in Sergio Corporation on January 1,2013,at which time Sergio's stockholders' equity consisted of $15,000 of Common Stock and $6,000 of Retained Earnings.The fair values of Sergio Corporation's assets and liabilities were identical to recorded book values when Paulee acquired its 80% interest. Sergio Corporation reported net income of $4,000 and paid dividends of $2,000 during 2013. Paulee Corporation sold inventory items to Sergio during 2013 and 2014 as follows: At December 31,2014,the accounts payable of Sergio include $1,500 owed to Paulee for inventory purchases. Required: Financial statements of Paulee and Sergio appear in the first two columns of the partially completed working papers.Complete the consolidation working papers for Paulee Corporation and Subsidiary for the year ended December 31,2014.

Peel Corporation acquired a 80% interest in Sitt Corporation at a cost equal to 80% of the book value of Sitt several years ago.At the time of purchase,the fair value and book value of Sitt's assets and liabilities were equal.Sitt purchases its entire inventory from Peel at 150% of Peel's cost.During 2014,Peel sold $190,000 of merchandise to Sitt.Sitt's beginning and ending inventories for 2014 were $72,000 and $66,000,respectively.Income statement information for both companies for 2014 is as follows: Required: Prepare a consolidated income statement for Peel Corporation and Subsidiary for 2014.

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 31,2014 are summarized as follows: During 2014,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 31,2014. Required: Prepare a consolidated income statement for Perry Corporation and Subsidiary for 2014.

PreBuild Manufacturing acquired 100% of Shoding Industries common stock on January 1,2014,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 2014,2015 and 2016,respectively.PreBuild sold inventory to Shoding during 2014 at a gross profit of $50,000 and 50% remained at Shoding at the end of the year.The remaining 50% was sold in 2015.At the end of 2015,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 2016.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 2014,2015,and 2016.

Penguin Corporation acquired a 60% interest in Squid Corporation on January 1,2014,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 2014.Penguin regularly sells merchandise to Squid at 120% of Penguin's cost.The intercompany sales information for 2014 is as follows: Required: 1.Determine the unrealized profit in Squid's inventory at December 31,2014. 2 Compute Penquin's income from Squid for 2014.

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 2014,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 2014 were as follows: -The 2014 consolidated income statement showed noncontrolling interest share of

Use the following information to answer the question(s)below. Pouch Corporation acquired an 80% interest in Shenley Corporation on January 1,2014,when the book values of Shenley's assets and liabilities were equal to their fair values.The cost of the 80% interest was equal to 80% of the book value of Shenley's net assets.During 2014,Pouch sold merchandise that cost $70,000 to Shenley for $86,000.On December 31,2014,three-fourths of the merchandise acquired from Pouch remained in Shenley's inventory.Separate incomes (investment income not included)of the two companies are as follows: -The consolidated income statement for Pouch Corporation and subsidiary for the year ended December 31,2014 will show consolidated cost of sales of

On January 1,2014,Paar Incorporated paid $38,500 for a 70% interest in Siba Enterprises,at a time when Siba's stockholder's equity consisted of $20,000 in Capital stock and $30,000 in Retained Earnings.The fair values of Siba's assets and liabilities equaled their recorded book values at that time,so any additional amount paid was attributed to goodwill. In 2014,Siba purchased merchandise from Paar at a price of $6,000.The products originally cost Paar $4,000,and 75% of this merchandise remained in inventory at December 31,2014.This inventory was sold in 2015.Siba reported net income of $9,000 and paid dividends of $3,000 during 2014. In 2015,Siba purchased merchandise from Paar at a price of $8,000.The products had a cost to Paar of $7,000,and 50% of this merchandise remained in inventory at December 31,2015.Siba still owed Paar $1,800 for these purchases at December 31,2015. Required: Financial statements of Paar and Siba appear in the first two columns of the partially completed working papers.Complete the consolidation working papers for Paar Corporation and Subsidiary for the year ended December 31,2015.

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

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 2014 were $450,000.Unrealized profits in Seaways' December 31,2013 inventory and December 31,2014 inventory were $17,000 and $15,000,respectively.Seaways reported net income of $750,000 for 2014. Required: 1.Determine Pirate's income from Seaways for 2014. 2.In General Journal format,prepare consolidation working paper entries at December 31,2014 to eliminate the effects of the intercompany inventory sales assuming the perpetual inventory method is used.

For 2014,consolidated net income will be what amount if the intercompany sale was downstream?

Use the following information to answer the question(s)below. Pouch Corporation acquired an 80% interest in Shenley Corporation on January 1,2014,when the book values of Shenley's assets and liabilities were equal to their fair values.The cost of the 80% interest was equal to 80% of the book value of Shenley's net assets.During 2014,Pouch sold merchandise that cost $70,000 to Shenley for $86,000.On December 31,2014,three-fourths of the merchandise acquired from Pouch remained in Shenley's inventory.Separate incomes (investment income not included)of the two companies are as follows: -What is Pouch's income from Shenley for 2014?