Exam 5: Intercompany Profit Transactions - Inventories

On January 1, 2011, 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 2011, 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, 2011.This inventory was sold in 2012.Siba reported net income of $9,000 and paid dividends of $3,000 during 2011. In 2012, 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, 2012.Siba still owed Paar $1,800 for these purchases at December 31, 2012. 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, 2012.

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, the total sales revenue reported in the consolidated income statement for 2011 would be

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: -The consolidated income statement for Pouch Corporation and subsidiary for the year ended December 31, 2012 will show consolidated cost of sales of

Phast Corporation owns a 80% interest in Stechno Company, acquired several years ago at a cost equal to book value and fair value.Stechno sells merchandise to Phast for the first time in 2011, and some is unsold at December 31, 2011.In computing income from the investee for 2011 under the equity method, Phast uses which equation?

Plateau Incorporated bought 60% of the common stock of Sachet Company several years ago.At the time of purchase, the fair value and book value of Sachet's net assets were equal.The cost of the 60% investment was equal to 60% of the book value of Sachet's net assets.Plateau sells merchandise to Sachet at 125% above Plateau's cost.Intercompany sales from Plateau to Sachet for 2012 were $60,000.Unrealized profits in Sachet's December 31, 2011 inventory and December 31, 2012 inventory were $6,000 and $4,500, respectively.Sachet reported net income of $120,000 for 2012. Required: In General Journal format, prepare consolidation working paper entries at December 31, 2012 to eliminate the effects of the intercompany inventory sales.

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

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.

Shalles Corporation, a 80%-owned subsidiary of Pani Corporation, sold inventory items to its parent at a $48,000 profit in 2012.Pani resold one-third of this inventory to outside entities.Shalles reported net income of $200,000 for 2012.Noncontrolling interest share of consolidated net income that will appear in the income statement for 2012 is

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 was an upstream sale, the total amount of consolidated cost of goods sold for 2012 will be

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: -What is Pouch's income from Shenley for 2012?

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: -The 2011 consolidated income statement showed noncontrolling interest share of

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, 2011 are summarized as follows: During 2011, 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, 2011. Required: Prepare a consolidated income statement for Perry 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: -The 2011 consolidated income statement showed cost of goods sold of

Presented below are several figures reported for Plate Corporation and Saucer Industries as of December 31, 2011.Plate has owned 70% of Saucer for the past five years, and at the time of purchase, the book value of Saucer's assets and liabilities equaled the fair value.The cost of the 70% investment was equal to 70% of the book value of Saucer's net assets.At the time of purchase, the fair values and book values of Saucer's assets and liabilities were equal. In 2010, Saucer sold inventory to Plate which had cost $40,000 for $60,000.25% of this inventory remained on hand at December 31, 2010, but was sold in 2011.In 2011, Saucer sold inventory to Plate which had cost $30,000 for $45,000.40% of this inventory remained unsold at December 31, 2011. Required: Calculate following balances at December 31, 2011. a.Consolidated Sales b.Consolidated Cost of goods sold c.Consolidated Expenses d.Noncontrolling interest share of Saucer's net income e.Consolidated Inventory

Plover Corporation acquired 80% of Sink Inc.equity on January 1, 2010, 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 2010, 2011 and 2012 respectively.Plover sold inventory to Sink during 2010 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 2011.At the end of 2011, 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 2012.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 2010, 2011, and 2012.

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 2010.At the time of the acquisition, the book values and fair values of Sandman's assets and liabilities were equal.During 2011, Papal recorded sales of $440,000 of merchandise to Sandman at a gross profit rate of 30%.Sandman's beginning and ending inventories for 2011 were $60,000 and $80,000, respectively.Income statement information for both companies for 2011 is as follows: Required: Prepare a consolidated income statement for Papal Corporation and Subsidiary for 2011.

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 2011, they issued the following consolidated income statement: Shortly after the statements were issued, Pastern discovered that the 2011 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, 2011. Required: Prepare a corrected income statement for Pastern and Subsidiary for 2011.

On January 1, 2011, 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 2011, 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 2012.At the end of 2012, Palling held inventory acquired from Sam's with a $10,000 unrealized profit.Palling reported separate income of $100,000 for 2012 and paid dividends of $30,000.Sam's reported separate income of $70,000 for 2012 and paid dividends of $20,000. Required: Compute the controlling interest share of consolidated net income for 2012.

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: -What amount of unrealized profit did Pelga Company have at the end of 2012?

Salli Corporation regularly purchases merchandise from their 90%-owner, Playtime Corporation.Playtime purchased the 90% interest at a cost equal to 90% of the book value of Salli's net assets.At the time of acquisition, the book values and fair values of Salli's assets and liabilities were equal.Playtime makes their sales to Salli at 120% of cost.In 2012, Salli reported net income of $460,000, and made purchases totaling $172,000 from Playtime.Although Salli had no inventory on hand at the beginning of 2012 that they had purchased from Playtime, at year end, they had $51,600 of this merchandise in inventory. Required: 1.Determine the unrealized profit in Salli's inventory at December 31, 2012. 2.Compute Playtime's income from Salli for 2012.