Exam 5: Intercompany Profit Transactions - Inventories

Pittle Corporation acquired an 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.

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 intercompany sale was an upstream sale,the total amount of consolidated cost of goods sold for 2015 will be

A parent company regularly sells merchandise to its 70%-owned subsidiary.Which of the following statements describes the computation of noncontrolling interest share?

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.

Assume there are routine inventory sales between parent companies and subsidiaries.When preparing the consolidated financial statements,which of the following line items is indifferent to the sales being either upstream or downstream?

Preen Corporation acquired a 60% interest in Shino Corporation at a cost equal to 60% of the book value of Shino's net assets in 2014.At the time of acquisition,the book value and fair value of Shino's assets and liabilities were equal.During 2015,Preen sold $120,000 of merchandise to Shino.All intercompany sales are made at 150% of Preen's cost.Shino's beginning and ending inventories resulting from intercompany sales for 2015 were $60,000 and $36,000,respectively.Income statement information for both companies for 2015 is as follows: Required: Prepare a consolidated income statement for Preen Corporation and Subsidiary for 2015.

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 cost of goods sold of

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: -What is Pew's income from Sordid for 2014?

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: -What amount of unrealized profit did Pelga Company have at the end of 2015?

Papal Corporation acquired an 80% interest in Sandman Corporation at a cost equal to 80% of the book value of Sandman's net assets in 2013.At the time of the acquisition,the book values and fair values of Sandman's assets and liabilities were equal.During 2014,Papal recorded sales of $440,000 of merchandise to Sandman at a gross profit rate of 30%.Sandman's beginning and ending inventories for 2014 were $60,000 and $80,000,respectively.Income statement information for both companies for 2014 is as follows: Required: Prepare a consolidated income statement for Papal Corporation and Subsidiary for 2014.

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: -Consolidated cost of goods sold for Pelga and Subsidiary for 2015 were

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.

Pexo Industries purchases the majority of their raw materials from a wholly-owned subsidiary,Springmade Chemicals.Pexo purchased Springmade to assure supply availability at a time when the materials were being rationed in the industry due to supply issues overseas.Pexo was able to purchase Springmade at the book value of Springmade's net assets.At the time of purchase,the book value and fair value of Springmade's net assets were equal.Pexo purchased $2,890,000 of materials from Springmade in 2014 alone.All intercompany sales are made at 120% of cost,although Springmade is able to mark up their products 80% to other outside buyers.Pexo carried inventory on their books at the beginning and end of the year in the amount of $450,000 and $480,000,respectively,all of which had been purchased from Springmade.Income statement information for both companies for 2014 is as follows: Required: Prepare a consolidated income statement for Pexo Corporation and Subsidiary for 2014.

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 2014,intercompany sales from Solomon to Psalm amounted to $362,000.Unrealized profits in Psalm's December 31,2013 inventory and December 31,2014 inventory were $82,000 and $26,000,respectively.Solomon reported net income of $980,000 for 2014. Required: 1.Determine Psalm's income from Solomon 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.

On January 1,2014,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 2014,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 2015.At the end of 2015,Palling held inventory acquired from Sam's with a $10,000 unrealized profit.Palling reported separate income of $100,000 for 2015 and paid dividends of $30,000.Sam's reported separate income of $70,000 for 2015 and paid dividends of $20,000. Required: Compute the controlling interest share of consolidated net income for 2015.

Sales by a subsidiary to its parent affects the operating income of the parent when the merchandise is resold.

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?

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. 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

A downstream sale is a sale by a parent to a subsidiary.