Exam 5: Consolidated Financial Statements - Intercompany Asset Transactions

Webb Co.acquired 100% of Rand Inc.on January 5,2009.During 2009,Webb sold Rand for $2,400,000 goods that cost $1,800,000.Rand still owned 40% of the goods at the end of the year.Cost of goods sold was $10,800,000 for Webb and $6,400,000 for Rand.What was consolidated cost of goods sold?

Prince Corp.owned 80% of Kile Corp.'s common stock.During October 2009,Kile sold merchandise to Prince for $140,000.At December 31,2009,50% of this merchandise remained in Prince's inventory.For 2009,gross profit percentages were 30% of sales for Prince and 40% of sales for Kile.The amount of unrealized intercompany profit in ending inventory at December 31,2009 that should be eliminated in the consolidation process is

Clemente Co.owned all of the voting common stock of Snider Co.On January 2,2009,Clemente sold some equipment to Snider for $125,000.The equipment had cost $140,000.At the time of the sale,the balance in accumulated depreciation was $40,000.The equipment had a remaining useful life of five years and a $0 salvage value.Straight-line depreciation is used by both Clemente and Snider.At what amount should the equipment (net of depreciation)be included on the consolidated balance sheet dated December 31,2009?

REFERENCE: Ref.05_08 On January 1,2009,Smeder Company,an 80% owned subsidiary of Collins,Inc. ,transferred equipment with a 10-year life (six of which remain with no salvage value)to Collins in exchange for $84,000 cash.At the date of transfer,Smeder's records carried the equipment at a cost of $120,000 less accumulated depreciation of $48,000.Straight-line depreciation is used.Smeder reported net income of $28,000 and $32,000 for 2009 and 2010,respectively. -Compute Collins' share of Smeder's net income for 2009.

On November 8,2009,Power Corp.sold land to Wood Co. ,its wholly owned subsidiary.The land cost $61,500 and was sold to Wood for $89,000.From the perspective of the combination,when is the gain on the sale of the land realized?

REFERENCE: Ref.05_10 Stark Company,a 90% owned subsidiary of Parker,Inc. ,sold land to Parker on May 1,2009,for $80,000.the land originally cost Stark $85,000.Stark reported net income of $200,000,$180,000,and $220,000 for 2009,2010,and 2011,respectively.Parker sold the land it purchased from Stark in 2009 for $92,000 in 2011. -Compute income from Stark reported on Parker's books for 2010.

For each of the following situations (1 - 10),select the correct entry (a - e)that would be required on a consolidated worksheet. (A. )Debit retained earnings. (B. )Credit retained earnings. (C. )Debit investment in subsidiary. (D. )Credit investment in subsidiary. (E. )None of the above. ___ 1.Upstream beginning inventory profit,using the initial value method. ___ 2.Downstream beginning inventory profit,using the initial value method. ___ 3.Upstream ending inventory profit,using the initial value method. ___ 4.Downstream ending inventory profit,using the initial value method. ___ 5.Upstream transfer of depreciable assets in the period after transfer where subsidiary recognizes a gain,using the initial value method. ___ 6.Downstream transfer of depreciable assets in the period after transfer where parent recognizes a gain,using the initial value method. ___ 7.Upstream transfer of land in the period after transfer where subsidiary recognizes a loss,using the initial value method. ___ 8.Downstream transfer of land in the period after transfer where parent recognizes a loss,using the initial value method. ___ 9.Income from subsidiary,using the equity method. ___ 10.Amortization of cost over book value,using the equity method.

REFERENCE: Ref.05_14 On January 1,2009,Musial Corp.sold equipment to Matin Inc.(a wholly-owned subsidiary)for $168,000 in cash.The equipment had originally cost $140,000 but had a book value of only $98,000 when transferred.On that date,the equipment had a five-year remaining life.Depreciation expense was calculated using the straight-line method. Musial earned $308,000 in net income in 2009 (not including any investment income)while Matin reported $126,000.Assume there is no amortization related to the original investment. -Assuming that Musial owned only 90% of Matin,what is consolidated net income for 2009?

Fraker,Inc.owns 90 percent of Richards,Inc.and bought $200,000 of Richards' inventory in 2009.The transfer price was equal to 30 percent of the sales price.When preparing consolidated financial statements,what amount of these sales is eliminated?

REFERENCE: Ref.05_10 Stark Company,a 90% owned subsidiary of Parker,Inc. ,sold land to Parker on May 1,2009,for $80,000.the land originally cost Stark $85,000.Stark reported net income of $200,000,$180,000,and $220,000 for 2009,2010,and 2011,respectively.Parker sold the land it purchased from Stark in 2009 for $92,000 in 2011. -Which of the following will be included in a consolidation entry for 2009?

Which of the following statements is true regarding an intercompany sale of land?

X-Beams Inc.owned 70% of the voting common stock of Kent Corp.During 2009,Kent made several sales of inventory to X-Beams.The total selling price was $180,000 and the cost was $100,000.At the end of the year,20% of the goods were still in X-Beams' inventory.Kent's reported net income was $300,000.What was the noncontrolling interest in Kent's net income?

During 2009,Edwards Co.sold inventory to its parent company,Forsyth Corp.Forsyth still owned all of the inventory at the end of 2009.Why must the gross profit on the sale be deferred when consolidated financial statements are prepared at the end of 2009?

REFERENCE: Ref.05_11 Pepe,Incorporated acquired 60% of Devin Company on January 1,2009.On that date Devin sold equipment to Pepe for $45,000.The equipment had a cost of $120,000 and accumulated depreciation of $66,000 with a remaining life of 9 years.Devin reported net income of $300,000 and $325,000 for 2009 and 2010,respectively.Pepe uses the equity method to account for its investment in Devin. -Compute the noncontrolling interest in the net income of Devin for 2010.

REFERENCE: Ref.05_08 On January 1,2009,Smeder Company,an 80% owned subsidiary of Collins,Inc. ,transferred equipment with a 10-year life (six of which remain with no salvage value)to Collins in exchange for $84,000 cash.At the date of transfer,Smeder's records carried the equipment at a cost of $120,000 less accumulated depreciation of $48,000.Straight-line depreciation is used.Smeder reported net income of $28,000 and $32,000 for 2009 and 2010,respectively. -Compute Collins' share of Smeder's net income for 2010.

REFERENCE: Ref.05_06 Patti Company holds 80% of the common stock of Shannon,Inc.In the current year,Patti reports sales of $10,000,000 and cost of goods sold of $7,500,000.For the same period,Shannon has sales of $200,000 and cost of goods sold of $160,000.During the year,Patti sold merchandise to Shannon for $60,000 at a price based on the normal markup.At the end of the year,Shannon still possesses 30 percent of this inventory. -Compute consolidated sales.

REFERENCE: Ref.05_10 Stark Company,a 90% owned subsidiary of Parker,Inc. ,sold land to Parker on May 1,2009,for $80,000.the land originally cost Stark $85,000.Stark reported net income of $200,000,$180,000,and $220,000 for 2009,2010,and 2011,respectively.Parker sold the land it purchased from Stark in 2009 for $92,000 in 2011. -Compute Stark's reported gain or loss relating to the land for 2011.

Edgar Co.acquired 60% of Kindall Co.on January 1,2009.During 2009,Edgar made several sales of inventory to Kindall.The cost and selling price of the goods were $140,000 and $200,000,respectively.Kindall still owned one-fourth of the goods at the end of 2009.Consolidated cost of goods sold for 2009 was $2,140,000.How would consolidated cost of goods sold have differed if the inventory transfers had been for the same amount and cost,but from Kindall to Edgar?

On January 1,2009,Race Corp.acquired 80% of the voting common stock of Gallow Inc.During the year,Race sold to Gallow for $450,000 goods which cost $330,000.Gallow still owned 15% of the goods at year-end.Gallow's reported net income was $204,000,and Race's net income was $806,000.Race decided to use the equity method to account for this investment.What was the noncontrolling interest's share of consolidated net income?

REFERENCE: Ref.05_14 On January 1,2009,Musial Corp.sold equipment to Matin Inc.(a wholly-owned subsidiary)for $168,000 in cash.The equipment had originally cost $140,000 but had a book value of only $98,000 when transferred.On that date,the equipment had a five-year remaining life.Depreciation expense was calculated using the straight-line method. Musial earned $308,000 in net income in 2009 (not including any investment income)while Matin reported $126,000.Assume there is no amortization related to the original investment. -What is consolidated net income for 2009?