Exam 6: Intercompany Inventory Transactions

Sub Company sells all its output at 20 percent above cost to Par Corporation. Par purchases its entire inventory from Sub. The incomes reported by the companies over the past three years are as follows: Sub Company sold inventory for $300,000, $262,500 and $337,500 in the years 20X6, 20X7, and 20X8 respectively. Par Company reported ending inventory of $105,000, $157,500 and $180,000 for 20X6, 20X7, and 20X8 respectively. Par acquired 70 percent of the ownership of Sub on January 1, 20X6, at underlying book value. The fair value of the noncontrolling interest at the date of acquisition was equal to 30 percent of the book value of Sub Company. -Based on the information given above,what will be the income to controlling interest for 20X8?

ABC Corporation owns 75 percent of XYZ Company's voting shares. During 20X8, ABC produced 50,000 chairs at a cost of $79 each and sold 35,000 chairs to XYZ for $90 each. XYZ sold 18,000 of the chairs to unaffiliated companies for $117 each prior to December 31, 20X8, and sold the remainder in early 20X9 to unaffiliated companies for $130 each. Both companies use perpetual inventory systems. -Based on the information given above,what amount of cost of goods sold did ABC record in 20X8?

Binary Company acquired 75 percent ownership of Fordham Corporation in 20X5, at underlying book value. On that date, the fair value of the noncontrolling interest was equal to 25 percent of the book value of Fordham Corporation. Binary purchased inventory from Fordham for $150,000 on July 24, 20X6, and resold 90 percent of the inventory to unaffiliated companies on November 11, 20X6, for $160,000. Fordham produced the inventory sold to Binary for $120,000. The companies had no other transactions during 20X6. -Based on the information given above,what amount of cost of goods sold will be reported in the 20X6 consolidated income statement?

Push Company owns 60% of Shove Company's outstanding common stock. Intra-entity sales are as follows: -Assume Push sold the inventory to Shove.Using the fully adjusted equity method,what journal entry would be recorded by Push to defer the unrealized gross profit on inventory sales to Shove in 20X1?

Pisa Company acquired 75 percent of Siena Company on January 1,20X3 for $712,500.The fair value of the noncontrolling interest was equal to 25 percent of book value.On the date of acquisition,Siena had common stock outstanding of $300,000 and a balance in retained earnings of $650,000.During 20X3,Siena purchased inventory for $35,000 and sold it to Pisa for $50,000.Of this amount,Pisa reported $20,000 in ending inventory in 20X3 and later sold it in 20X4.In 20X4,Pisa sold inventory it had purchased for $40,000 to Siena for $60,000.Siena sold $45,000 of this inventory in 20X4. Income and dividend information for Siena for 20X3 and 20X4 are as follows: Pisa Company uses the modified equity method. Required: a.Present the worksheet consolidation entries necessary to prepare consolidated financial statements for 20X3. b.Present the worksheet consolidation entries necessary to prepare consolidated financial statements for 20X4. Problem 69 (continued)

Parent Corporation owns 90 percent of Subsidiary 1 Company's stock and 75 percent of Subsidiary 2 Company's stock. During 20X8, Parent sold inventory purchased in 20X7 for $48,000 to Subsidiary 1 for $60,000. Subsidiary 1 then sold the inventory at its cost of $60,000 to Subsidiary 2. Prior to December 31, 20X8, Subsidiary 2 sold $45,000 of inventory to a nonaffiliate for $67,000 and held $15,000 in inventory at December 31, 20X8. -Based on the information given above,what amount of cost of goods sold must be eliminated from the consolidated income statement for 20X8?

Earth Company owns 100 percent of the capital stock of both Mars Corporation and Venus Corporation. Mars purchases merchandise inventory from Venus at 125 percent of Venus's cost. During 20X8, Venus sold inventory to Mars that it had purchased for $25,000. Mars sold all of this merchandise to unrelated customers for $56,892 during 20X8. In preparing combined financial statements for 20X8, Earth's bookkeeper disregarded the common ownership of Mars and Venus. -Based on the information given above,what amount should be eliminated from cost of goods sold in the combined income statement for 20X8?

Pink Corporation owns 80 percent of Sink Company's voting shares. During 20X4, Pink produced 60,000 smart phones at a cost of $62 each and sold 45,000 smart phones to Sink for $93 each. Sink sold 26,000 of the smart phones to unaffiliated companies for $128 each prior to December 31, 20X4, and sold the remainder in early 20X5 to unaffiliated companies for $133 each. Both companies use the perpetual inventory systems. -Based on the information given above,what amount of cost of goods sold did Pink record in 20X4?

Pisa Company acquired 75 percent of Siena Company on January 1,20X3 for $712,500.The fair value of the noncontrolling interest was equal to 25 percent of book value.On the date of acquisition,Siena had common stock outstanding of $300,000 and a balance in retained earnings of $650,000.During 20X3,Siena purchased inventory for $35,000 and sold it to Pisa for $50,000.Of this amount,Pisa reported $20,000 in ending inventory in 20X3 and later sold it in 20X4.In 20X4,Pisa sold inventory it had purchased for $40,000 to Siena for $60,000.Siena sold $45,000 of this inventory in 20X4. Income and dividend information for Siena for 20X3 and 20X4 are as follows: Pisa Company uses the cost method. Required: a.Present the worksheet consolidation entries necessary to prepare consolidated financial statements for 20X3. b.Present the worksheet consolidation entries necessary to prepare consolidated financial statements for 20X4. Problem 70 (continued)

On January 1,20X7,Jones Company acquired 90 percent of the outstanding common stock of Smith Corporation for $1,242,000.On that date,the fair value of noncontrolling interest was equal to $138,000.The entire differential was related to land held by Smith.At the date of acquisition,Smith had common stock outstanding of $520,000,additional paid-in capital of $200,000,and retained earnings of $540,000.During 20X7,Smith sold inventory to Jones for $440,000.The inventory originally cost Smith $360,000.By year-end,30 percent was still in Jones' ending inventory.During 20X8,the remaining inventory was resold to an unrelated customer.Both Jones and Smith use perpetual inventory systems. Income and dividend information for both Jones and Smith for 20X7 and 20X8 are as follows: Assume Jones uses the cost method to account for its investment in Smith. Required: a.Present the worksheet consolidation entries necessary to prepare consolidated financial statements for 20X7. b.Present the worksheet consolidation entries necessary to prepare consolidated financial statements for 20X8. Problem 68 (continued)

Binary Company acquired 75 percent ownership of Fordham Corporation in 20X5, at underlying book value. On that date, the fair value of the noncontrolling interest was equal to 25 percent of the book value of Fordham Corporation. Binary purchased inventory from Fordham for $150,000 on July 24, 20X6, and resold 90 percent of the inventory to unaffiliated companies on November 11, 20X6, for $160,000. Fordham produced the inventory sold to Binary for $120,000. The companies had no other transactions during 20X6. -Based on the information given above,what amount of sales will be reported in the 20X6 consolidated income statement?

Selected information from the separate and consolidated balance sheets and income statements of Pare, Inc. and its subsidiary, Shel Co., as of December 31, 20X5, and for the year then ended is as follows: Additional information: During 20X5, Pare sold goods to Shel at the same markup on cost that Pare uses for all sales. -At December 31,20X5,what was the amount of Shel's payable to Pare for intercompany sales?

Pink Corporation owns 80 percent of Sink Company's voting shares. During 20X4, Pink produced 60,000 smart phones at a cost of $62 each and sold 45,000 smart phones to Sink for $93 each. Sink sold 26,000 of the smart phones to unaffiliated companies for $128 each prior to December 31, 20X4, and sold the remainder in early 20X5 to unaffiliated companies for $133 each. Both companies use the perpetual inventory systems. -Based on the information given above,what amount of cost of goods must be eliminated from the consolidated income statement for 20X5?

Clark Co.had the following transactions with affiliated parties during 20X1: -Sales of $60,000 to Dean,Inc.,with $20,000 gross profit.Dean had $15,000 of this inventory on hand at year end.Clark owns a 15% interest in Dean and does not exert significant influence. -Purchases of raw materials totaling $240,000 from Kent Corp.,a wholly-owned subsidiary.Kent's gross profit on the sale was $48,000.Clark had $60,000 of this inventory remaining on December 31,20X1. Before consolidating entries,Clark had consolidated current assets of $320,000.What amount should Clark report in its December 31,20X1,consolidated balance sheet for current assets?

Pisa Company acquired 75 percent of Siena Company on January 1,20X3 for $712,500.The fair value of the noncontrolling interest was equal to 25 percent of book value.On the date of acquisition,Siena had common stock outstanding of $300,000 and a balance in retained earnings of $650,000.During 20X3,Siena purchased inventory for $35,000 and sold it to Pisa for $50,000.Of this amount,Pisa reported $20,000 in ending inventory in 20X3 and later sold it in 20X4.In 20X4,Pisa sold inventory it had purchased for $40,000 to Siena for $60,000.Siena sold $45,000 of this inventory in 20X4. Income and dividend information for Siena for 20X3 and 20X4 are as follows: Pisa Company uses the fully adjusted equity method. Required: a.Present the worksheet consolidation entries necessary to prepare consolidated financial statements for 20X3. b.Present the worksheet consolidation entries necessary to prepare consolidated financial statements for 20X4. Problem 66 (continued)

Parent Corporation owns 90 percent of Subsidiary 1 Company's stock and 75 percent of Subsidiary 2 Company's stock. During 20X8, Parent sold inventory purchased in 20X7 for $48,000 to Subsidiary 1 for $60,000. Subsidiary 1 then sold the inventory at its cost of $60,000 to Subsidiary 2. Prior to December 31, 20X8, Subsidiary 2 sold $45,000 of inventory to a nonaffiliate for $67,000 and held $15,000 in inventory at December 31, 20X8. -Based on the information given above,what amount of sales must be eliminated from the consolidated income statement for 20X8?

Parent Corporation owns 90 percent of Subsidiary 1 Company's stock and 75 percent of Subsidiary 2 Company's stock. During 20X8, Parent sold inventory purchased in 20X7 for $48,000 to Subsidiary 1 for $60,000. Subsidiary 1 then sold the inventory at its cost of $60,000 to Subsidiary 2. Prior to December 31, 20X8, Subsidiary 2 sold $45,000 of inventory to a nonaffiliate for $67,000 and held $15,000 in inventory at December 31, 20X8. -Based on the information given above,what amount should be reported in the 20X8 consolidated income statement as cost of goods sold?

Earth Company owns 100 percent of the capital stock of both Mars Corporation and Venus Corporation. Mars purchases merchandise inventory from Venus at 125 percent of Venus's cost. During 20X8, Venus sold inventory to Mars that it had purchased for $25,000. Mars sold all of this merchandise to unrelated customers for $56,892 during 20X8. In preparing combined financial statements for 20X8, Earth's bookkeeper disregarded the common ownership of Mars and Venus. -Based on the information given above,by what amount was unadjusted revenue overstated in the combined income statement for 20X8?

ABC Corporation owns 75 percent of XYZ Company's voting shares. During 20X8, ABC produced 50,000 chairs at a cost of $79 each and sold 35,000 chairs to XYZ for $90 each. XYZ sold 18,000 of the chairs to unaffiliated companies for $117 each prior to December 31, 20X8, and sold the remainder in early 20X9 to unaffiliated companies for $130 each. Both companies use perpetual inventory systems. -Based on the information given above,what amount of cost of goods sold must be eliminated from the consolidated income statement for 20X8?

Colton Company acquired 80 percent ownership of Mota Company's voting shares on January 1,2008,at underlying book value.The fair value of the noncontrolling interest on that date was equal to 20 percent of the book value of Mota Company.During 2008,Colton purchased inventory for $30,000 and sold the full amount to Mota Company for $50,000.On December 31,2008,Mota's ending inventory included $10,000 of items purchased from Colton.Also in 2008,Mota purchased inventory for $80,000 and sold the units to Colton for $100,000.Colton included $30,000 of its purchase from Mota in ending inventory on December 31,2008.Summary income statement data for the two companies revealed the following: Required: a.Compute the amount to be reported as sales in the 20X8 consolidated income statement. b.Compute the amount to be reported as cost of goods sold in the 20X8 consolidated income statement. c.What amount of income will be assigned to the noncontrolling shareholders in the 20X8 consolidated income statement? d.What amount of income will be assigned to the controlling interest in the 20X8 consolidated income statement? Problem 63 (continued)