Exam 4: Intercompany Transactions: Merchandise, Plant Assets, and Notes

On January 1, 2016, Pep Company acquired 80% of the common stock of Sky Company for $195,000.On this date Sky had total owners' equity of $200,000 (common stock, other paid-in capital, and retained earnings of $10,000, $90,000, and $100,000 respectively). ? Any excess of cost over book value is attributable to inventory (worth $6,250 more than cost), to equipment (worth $12,500 more than book value), and to patents.FIFO is used for inventories.The equipment has a remaining life of five years and straight-line depreciation is used.The excess attributable to the patents is to be amortized over 20 years. ? During 2016 and 2017, Pep has appropriately accounted for its investment in Sky using the simple equity method. ? On January 1, 2017, Pep held merchandise acquired from Sky for $10,000.During 2017, Sky sold merchandise to Pep for $50,000, $20,000 of which is still held by Pep on December 31, 2017.Sky's usual gross profit on affiliated sales is 50%. ? On December 31, 2016, Pep sold equipment to Sky at a gain of $10,000.During 2017, the equipment was used by Sky.Depreciation is being computed using the straight-line method, a five-year life, and no salvage value. ? Required: ? a.Using the information above or on the Figure 4-6 worksheet, prepare a determination and distribution of excess schedule.? ? b.Complete the Figure 4-6 worksheet for consolidated financial statements for the year ended December 31, 2017.? ? ?

If subsidiary net income is $15,000 for Company S and parent Company P has a 75% interest in subsidiary Company S, what would be the elimination entry for the current-year equity income of Company S:

Which of the following should appear in consolidated financial statements?

Pease Corporation owns 100% of Sade Corporation common stock.On January 2, 2016, Pease sold machinery with a carrying amount of $30,000 to Sade for $50,000.Sade is depreciating the acquired machinery over a 5-year life using the straight-line method.The related net adjustments to compute the 2016 and 2017 consolidated income before income tax would be an increase (decrease) of ? $\quad$$\quad$ 2016 $\quad$ 2017

Porch Company owns a 90% interest in the Screen Company.Porch sold Screen a milling machine on January 1, 2016, for $50,000 when the book value of the machine on Porch's books was $40,000.Porch financed the sale with Screen signing a 3-year, 8% interest, and note for the entire $50,000.The machine will be used for 10 years and depreciated using the straight-line method.The following amounts related to this transaction were located on the company's trial balances: Interest Revenue \4 ,000 Interest Expense \4 ,000 Depreciation Expense \5 ,000 Based upon the information related to this transaction what will be the amounts eliminated in preparing the 2016 consolidated financial statements $\quad$ Interest Revenue $\quad$ Interest Expense $\quad$ Depreciation Expense

On January 1, 2016, Prange Company acquired 80% of the common stock of Seaman Company for $500,000.On this date Seaman had total owners' equity of $400,000.Any excess of cost over book value is attributable to patent, which is to be amortized over 20 years. ? During 2016 and 2017, Prange has appropriately accounted for its investment in Seaman using the simple equity method. ? On January 1, 2017, Prange held merchandise acquired from Seaman for $30,000.During 2017, Seaman sold merchandise to Prange for $100,000, of which $20,000 is held by Prange on December 31, 2017.Seaman's gross profit on all sales is 40%. ? On December 31, 2017, Prange still owes Seaman $20,000 for merchandise acquired in December. ? Required: ? Complete the Figure 4-2 worksheet for consolidated financial statements for the year ended December 31, 2017. ? ? ?

Power Company owns a 70% controlling interest in the Shelton Company.Shelton regularly sells merchandise to Power, which then sells to outside parties.The gross profit on these sales is the same as sales to outside parties.On January 1, 2019, Power sold land and a building to Shelton.Twenty percent of the price of the real estate was allocated to land and the remaining amount to structures.Additional information for the companies for 2019 is summarized as follows: ? ? Power Shelton Sales \ 2,250,000 \ 1,500,000 Cost of goods sold 1,850,000 1,050,000 Operating expenses 320,000 240,000 Internally generated net income \ 860,000 \ 435,000 Intercompany merchandise sales 200,000 Intercompany inventory, end of year 50,000 Intercompany inventory, beginning of year 40,000 Book value of real estate sold 150,000 Sales price for real estate 220,000 Depreciable life of buil ding 14 years Prepare income distribution schedules for 2019 for Power and Shelton as they would be prepared to distribute income to the non-controlling and controlling interests in support of consolidated worksheets. ?

Stroud Corporation is an 80%-owned subsidiary of Pennie, Inc., acquired by Pennie several years ago.On January 1, 2017, Pennie sold land with a book value of $60,000 to Stroud for $90,000.Stroud resold the land to an unrelated party for $100,000 on September 26, 2018.The land will be included in the December 31, 2017 consolidated balance sheet of Pennie, Inc.and Subsidiary at ____.

Sally Corporation, an 80%-owned subsidiary of Reynolds Company, buys half of its raw materials from Reynolds.The transfer price is exactly the same price as Sally pays to buy identical raw materials from outside suppliers and the same price as Reynolds sells the materials to unrelated customers.In preparing consolidated statements for Reynolds Company and Subsidiary Sally Corporation,

Selected information from the separate and consolidated balance sheets and income statements of Palo Alto, Inc.and its subsidiary, Stanford Co., as of December 31, 2016, and for the year then ended is as follows: ? ? Palo Alto Stanford Consolidated Balance sheet accounts: Accounts receivable \ 26,000 \ 19,000 \ 42,000 Inventory 30,000 25,000 50,000 Investment in Stanford 67,000 - - Stockholders' equity 154,000 50,000 154,000 Income statement accounts: Revenues \ 200,000 \ 140,000 \ 300,000 Cost of goods sold 150,000 110,000 225,000 Gross profit 50,000 30,000 75,000 Equity in earnings of Stanford \ 9,000 -- -- Net income \ 36,000 \ 20,000 \ 36,000 Additional information: ? During 2016, Palo Alto sold goods to Stanford at the same markup on cost that Palo Alto uses for all sales.At December 31, 2016, Stanford had not paid for all of these goods and still held 50% of them in inventory. ? Palo Alto acquired its interest in Stanford five years earlier (as of December 31, 2016). ? Required: ? For each of the following items, calculate the required amount. ? a.The amount of intercompany sales from Palo Alto to Stanford during 2016.? ? b.The amount of Stanford's payable to Palo Alto for intercompany sales as of December 31, 2016.? ? c.In Palo Alto's December 31, 2016, consolidated balance sheet, the carrying amount of the inventory that Stanford purchased from Palo Alto.?

On January 1, 2016, Powers Company acquired 80% of the common stock of Sculley Company for $195,000.On this date Sculley had total owners' equity of $200,000 (common stock, other paid-in capital, and retained earnings of $10,000, $90,000, and $100,000 respectively). ? Any excess of cost over book value is attributable to inventory (worth $6,250 more than cost), to equipment (worth $12,500 more than book value), and to patents.FIFO is used for inventories.The equipment has a remaining life of five years and straight-line depreciation is used.The excess to the patents is to be amortized over 20 years. ? On July 1, 2017 Sculley borrowed $100,000 from Powers with a 10% 1-year note; interest is due at maturity. ? On January 1, 2017, Powers held merchandise acquired from Sculley for $10,000.During 2017, Sculley sold merchandise to Powers for $50,000, $20,000 of which is still held by Powers on December 31, 2017.Sculley's usual gross profit on affiliated sales is 50%. ? On December 31, 2016, Powers sold equipment to Sculley at a gain of $10,000.During 2017, the equipment was used by Sculley.Depreciation is being computed using the straight-line method, a five-year life, and no salvage value. ? Both companies have a calendar-year fiscal year. ? Assume that during 2016 and 2017, Powers has appropriately accounted for its investment in Sculley using the cost method. ? Required: ? a.Using the information above or on the Figure 4-5 worksheet, prepare a determination and distribution of excess schedule.? ? b.Complete the Figure 4-5 worksheet for consolidated financial statements for the year ended December 31, 2017.? ? ? ?

Schiff Company owns 100% of the outstanding common stock of the Viel Company.During 2016, Schiff sold merchandise to Viel that Viel, in turn, sold to unrelated firms.There were no such goods in Viel's ending inventory.However, some of the intercompany purchases from Schiff had not yet been paid.Which of the following amounts will be incorrect in the consolidated statements if no adjustments are made?​

Williard Corporation regularly sells inventory items to its subsidiary, Petty, Inc.If unrealized profits in Petty's 2016 year-end inventory exceed the unrealized profits in its 2017 year-end inventory, 2017 combined

Phelps Co.uses the sophisticated equity method to account for the 80% investment in its subsidiary Shore Corp.At the time of the acquisition, the fair values of the net asset required approximated their book values.Based upon the following information, what amount does Phelps Co.record as subsidiary income Phelps internally generated income: \ 250,000 Shore internally generated income: \ 50,000 Intercompany profit on Shore beginning inventory: \ 10,000 Intercompany profit on Shore ending inventory: \ 15,000

The following accounts were noted in reviewing the trial balance for Parent Co.and Subsidiary Corp.: Assets under Construction Contracts Receivable Billings on Construction in Progress Earned Income on Long-Term Contracts Contracts Payable If these accounts pertain to a contract where Subsidiary Corp.is building an asset for Parent Co., which of these accounts do you expect to eliminate when producing Parent Co.consolidated financial statements?

Cattle Company sold inventory with a cost of $40,000 to its 90%-owned subsidiary, Range Corp., for $100,000 in 2016.Range resold $75,000 of this inventory for $100,000 in 2016.Based on this information, the amount of inventory reported on the consolidated financial statements at the end of 2016 is:

Phelps Co.uses the sophisticated equity method to account for the 80% investment in its subsidiary Shore Corp.At the time of the acquisition, the fair values of the net asset required approximated their book values.Based upon the following information, what is consolidated net income Phelps internally generated income: \ 250,000 Shore internally generated income: \ 50,000 Intercompany profit on Shore beginning inventory: \ 10,000 Intercompany profit on Shore ending inventory: \ 15,000

This year, Rose Company acquired all of the common stock of Hayley Company.At the end of the current year, balances of selected accounts and other information for each of the companies were as follows: At the end of the year, 50% of the inventory that Rose sold to Hayley remained in Hayley's inventory, and $30,000 of the amount of the sales was unpaid.Rose still owes half of the amount of its purchases to Hayley, but had sold all of the inventory it had acquired from Hayley by the end of the year. Rose Hayley Sales \ 2,582,000 \ 1,734,000 Accounts receivable 580,000 235,000 Sales to Hayley during year 80,000 Sales to Rose during year 20,000 Gross profit on all sales 25\% 30\% What is the consolidated Accounts receivable balance at the end of the year?

On January 1, 2016, Parent Company acquired 100% of the common stock of Subsidiary Company for $750,000.On this date Subsidiary had total owners' equity of $540,000. ? Any excess of cost over book value is attributable to land, undervalued $10,000, and to goodwill. ? During 2016 and 2017, Parent has appropriately accounted for its investment in Subsidiary using the simple equity method. ? On January 1, 2017, Parent held merchandise acquired from Subsidiary for $10,000.During 2017, Subsidiary sold merchandise to Parent for $100,000, of which $20,000 is held by Parent on December 31, 2017.Subsidiary's usual gross profit on affiliated sales is 40%. ? On December 31, 2017, Parent still owes Subsidiary $20,000 for merchandise acquired in December. ? On January 1, 2017, Parent sold to Subsidiary some equipment with a cost of $50,000 and a book value of $20,000.The sales price was $40,000.Subsidiary is depreciating the equipment over a five-year life, assuming no salvage value and using the straight-line method. ? Required: ? Complete the Figure 4-3 worksheet for consolidated financial statements for the year ended December 31, 2017. ? ? ?

Diller owns 80% of Lake Company common stock.During October 2016, Lake sold merchandise to Diller for $300,000.On December 31, 2016, one-half of this merchandise remained in Diller's inventory.For 2016, gross profit percentages were 30% for Diller and 40% for Lake.The amount of unrealized profit in the ending inventory on December 31, 2016 that should be eliminated in consolidation is ____.