Exam 5: Consolidated Financial Statements - Intercompany Asset Transactions

REFERENCE: Ref.05_02 On January 1,2009,Pride,Inc.bought 80% of the outstanding voting common stock of Strong Corp.for $364,000.Of this payment,$28,000 was allocated to equipment (with a five-year life)that had been undervalued on Strong's books by $35,000.Any remaining excess was attributable to goodwill which has not been impaired. As of December 31,2009,before preparing the consolidated worksheet,the financial statements appeared as follows: During 2009,Pride bought inventory for $112,000 and sold it to Strong for $140,000.Only half of this purchase had been paid for by Strong by the end of the year.60% of these goods were still in the company's possession on December 31. -What is the consolidated total of noncontrolling interest appearing on the balance sheet?

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 credit entry in the consolidated worksheet for 2009?

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 -Assume that Polar sold inventory to Icecap at a markup equal to 40% of cost.Intercompany transfers were $126,000 in 2008 and $154,000 in 2009.Of this inventory,$39,200 of the 2008 transfers were retained and then sold by Icecap in 2009 while $58,800 of the 2009 transfers were held until 2010. Required: On the consolidated financial statements for 2009,determine the balances that would appear for the following accounts: (1)Cost of Goods Sold, (2)Inventory,and (3)Noncontrolling Interest in Subsidiary's Net Income.(If you use a gross profit percentage,do not round the calculation. )

Flintstone Inc.acquired all of Rubble Co.on January 1,2009.Flintstone decided to use the initial value method to account for this investment.During 2009,Flintstone sold to Rubble for $600,000 inventory with a cost of $500,000.At the end of the year 30% of the goods were still in Rubble's inventory. Required: Prepare Consolidation Entry TI and Consolidation Entry G for the consolidation worksheet at 12/31/09.

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 income from Gargiulo reported on Posito's books for 2009.

How is the gain on an intercompany transfer of a depreciable asset 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 the gain or loss on the intercompany sale of land.

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 2009?

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

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 2010?

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 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 Simon's share of income from Wilson for consolidation for 2009.

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 income from Gargiulo reported on Posito's books for 2011.

REFERENCE: Ref.05_01 Pot Co.holds 90% of the common stock of Skillet Co.During 2009,Pot reported sales of $1,120,000 and cost of goods sold of $840,000.For this same period,Skillet had sales of $420,000 and cost of goods sold of $252,000.Also during 2009,Pot sold merchandise to Skillet for $140,000.The subsidiary still possesses 40% of this inventory at the end of 2009.Pot had established the transfer price based on its normal markup. -What are consolidated sales and cost of goods sold?

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 income from Devin reported on Pepe's books for 2009.

How does a gain on an intercompany sale of equipment affect the calculation of a noncontrolling interest?

REFERENCE: Ref.05_03 Strickland Company sells inventory to its parent,Carter Company,at a profit during 2009.Select the correct answer. -With regard to the intercompany sale,which of the following choices would be a debit entry in the consolidated worksheet for 2010?

Gentry Inc.acquired 100% of Gaspard Farms on January 5,2009.During 2009,Gentry sold Gaspard Farms for $625,000 goods which had cost $425,000.Gaspard Farms still owned 12% of the goods at the end of the year.In 2010,Gentry sold goods with a cost of $800,000 to Gaspard Farms for $1,000,000,and Gaspard Farms still owned 10% of the goods at year-end.For 2010,cost of goods sold was $1,200,000 for Gaspard Farms and $5,400,000 for Gentry.What was consolidated cost of goods sold for 2010?

What is the net effect on consolidated net income in 2009,before allocation to controlling and noncontrolling interests,due to the equipment transfer?

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 20010.