Exam 5: Consolidated Financial Statements - Intercompany Asset Transactions

McGraw Corp.owned all of the voting common stock of both Ritter Co.and Lawler Co.During 2009,Ritter sold inventory to Lawler.The goods had cost Ritter $65,000,and they were sold to Lawler for $100,000.At the end of 2009,Lawler still held 30% of the inventory. Required: How should the sale between Lawler and Ritter be accounted for by the consolidated entity?

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. -Assume the same information,except Shannon sold inventory to Patti.Compute consolidated sales.

On January 1,2009,Payton Co.sold equipment to its subsidiary,Starker Corp. ,for $115,000.The equipment had cost $125,000,and the balance in accumulated depreciation was $45,000.The equipment had an estimated remaining useful life of eight years and $0 salvage value.Both companies use straight-line depreciation.On their separate 2009 income statements,Payton and Starker reported depreciation expense of $84,000 and $60,000,respectively.The amount of depreciation expense on the consolidated income statement for 2009 would have been

For consolidation purposes,what net debit or credit will be made in 2009 relating to the equipment transfer?

When comparing the difference between an upstream and downstream transfer of inventory,and using the initial value method,which of the following statements is true?

An intercompany sale took place whereby the transfer price exceeded the book value of a depreciable asset.Which statement is true for the year following the sale?

During 2009,Von Co.sold inventory to its wholly-owned subsidiary,Lord Co.The inventory cost $30,000 and was sold to Lord for $44,000.From the perspective of the combination,when is the $14,000 gain realized?

REFERENCE: Ref.05_07 On April 1,2009 Wilson Company,a 90% owned subsidiary of Simon Company,bought equipment from Simon for $68,250.On January 1,2009,Simon realized that the useful life of the equipment was longer than originally anticipated,at ten remaining years.The equipment had an original cost to Simon of $80,000 and a book value of $50,000 with a 10-year remaining life as of January 1,2009. The following data are available pertaining to Wilson's income and dividends: -Compute the amortization of gain for 2010 for consolidation purposes.

When comparing the difference between an upstream and downstream transfer of inventory,and using the initial value method,which of the following statements is true?

REFERENCE: Ref.05_07 On April 1,2009 Wilson Company,a 90% owned subsidiary of Simon Company,bought equipment from Simon for $68,250.On January 1,2009,Simon realized that the useful life of the equipment was longer than originally anticipated,at ten remaining years.The equipment had an original cost to Simon of $80,000 and a book value of $50,000 with a 10-year remaining life as of January 1,2009. The following data are available pertaining to Wilson's income and dividends: -Compute Simon's share of income from Wilson for consolidation for 2010.

REFERENCE: Ref.05_04 Walsh Company sells inventory to its subsidiary,Fisher Company,at a profit during 2009.Walsh uses the equity method to account for its investment in Fisher. -With regard to the intercompany sale,which of the following choices would be a debit entry in the consolidated worksheet for 2010?

Throughout 2009,Cleveland Co.sold inventory to Leeward Co. ,its subsidiary.From a consolidated point of view,when will the gain on this transfer be earned?

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 2009.

Justings Co.owned 80% of Evana Corp.During 2009,Justings sold to Evana land with a book value of $48,000.The selling price was $70,000.In its accounting records,Justings should

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 and the equipment transfer had been upstream,what is consolidated net income for 2009?

REFERENCE: Ref.05_12 Virginia Corp.owned all of the voting common stock of Stateside Co.Both companies use the perpetual inventory method,and Virginia decided to use the partial equity method to account for this investment.During 2009,Virginia made cash sales of $400,000 to Stateside.The gross profit rate was 30% of the selling price.By the end of the year,Stateside had used 75% of the goods. -Prepare the consolidation entries that should be made at the end of 2009.

REFERENCE: Ref.05_07 On April 1,2009 Wilson Company,a 90% owned subsidiary of Simon Company,bought equipment from Simon for $68,250.On January 1,2009,Simon realized that the useful life of the equipment was longer than originally anticipated,at ten remaining years.The equipment had an original cost to Simon of $80,000 and a book value of $50,000 with a 10-year remaining life as of January 1,2009. The following data are available pertaining to Wilson's income and dividends: -Compute the amortization of gain for 2011 for consolidation purposes.

REFERENCE: Ref.05_13 Several years ago Polar Inc.purchased an 80% interest in Icecap Co.The book values of Icecap's asset and liability accounts at that time were considered to be equal to their fair values.Polar paid an amount corresponding to the underlying book value of Icecap so that no allocations or goodwill resulted from the purchase price. The following selected account balances were from the individual financial records of these two companies as of December 31,2009: SHAPE \* MERGEFORMAT -Polar sold a building to Icecap on January 1,2008 for $112,000,although the book value of this asset was only $70,000 on that date.The building had a five-year remaining useful life and was to be depreciated using the straight-line method with no salvage value. Required: On the consolidated financial statements for 2009,determine the balances that would appear for the following accounts: (1)Buildings (net), (2)Operating expenses,and (3)Noncontrolling Interest in Subsidiary's Net Income.

REFERENCE: Ref.05_05 Gargiulo Company,a 90% owned subsidiary of Posito Corporation,sells inventory to Posito at a 25% profit on selling price.The following data are available pertaining to intercompany purchases.Gargiulo was acquired on January 1,2009. Assume the equity method is used.The following data are available pertaining to Gargiulo's income and dividends. -Compute the noncontrolling interest in Gargiulo's net income for 2011.

King Corp.owns 85% of James Co.King uses the equity method to account for this investment.During 2009,King sells inventory to James for $500,000.The inventory originally cost King $420,000.At 12/31/09,25% of the goods were still in James' inventory. Required: Prepare the Consolidation Entry TI and Consolidation Entry G for the consolidation worksheet.