Exam 5: Intercompany Profit Transactions - Inventories

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.

Use the following information to answer the question(s) below. Pouch Corporation acquired an 80% interest in Shenley Corporation on January 1, 2012, 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 2012, Pouch sold merchandise that cost $70,000 to Shenley for $86,000. On December 31, 2012, 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: -Swamp Co., a 55%-owned subsidiary of Pond Inc., made the following entry to record a sale of merchandise to Pond: All Swamp sales are at 125% of cost.One-fourth of this merchandise remained in the Pond's inventory at year-end.A working paper entry to eliminate unrealized profits from consolidated inventory would include a credit to Inventory in the amount 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 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

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.

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.. 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

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?

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.

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 2010.At the time of acquisition, the book value and fair value of Shino's assets and liabilities were equal.During 2011, 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 2011 were $60,000 and $36,000, respectively.Income statement information for both companies for 2011 is as follows: Required: Prepare a consolidated income statement for Preen Corporation and Subsidiary for 2011.

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 2011, Peel sold $190,000 of merchandise to Sitt.Sitt's beginning and ending inventories for 2011 were $72,000 and $66,000, respectively.Income statement information for both companies for 2011 is as follows: Required: Prepare a consolidated income statement for Peel Corporation and Subsidiary for 2011.

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 intercompany sale mentioned above was an upstream sale, what will be the reported amount of total consolidated sales revenue for 2012?

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 2011, Seel sold $490,000 of merchandise to Pittle.Pittle's beginning and ending inventories for 2011 were $72,000 and $66,000, respectively.Income statement information for both companies for 2011 is as follows: Required: Prepare a consolidated income statement for Pittle Corporation and Subsidiary for 2011.

Paulee Corporation paid $24,800 for an 80% interest in Sergio Corporation on January 1, 2010, 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 2010. Paulee Corporation sold inventory items to Sergio during 2010 and 2011 as follows: At December 31, 2011, 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, 2011.

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.

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 2011 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 2011 is as follows: Required: Prepare a consolidated income statement for Pexo Corporation and Subsidiary for 2011.

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.

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 2011, Sipp sold merchandise to Proman for $80,000 at a 20% gross profit.At December 31, 2011, 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 2011 for Proman and subsidiary.

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