Exam 5: Consolidated Financial Statements - Intercompany Asset Transactions

REFERENCE: Ref.05_09 Stiller Company,an 80% owned subsidiary of Leo Company,purchased land from Leo on March 1,2009,for $75,000.The land originally cost Leo $60,000.Stiller reported net income of $125,000 and $140,000 for 2009 and 2010,respectively.Leo uses the equity method to account for its investment. -On a consolidation worksheet,what adjustment would be made for 2009 regarding the land transfer?

Yoderly Co. ,a wholly owned subsidiary of Nelson Corp. ,sold goods to Nelson near the end of 2008.The goods had cost Yoderly $105,000 and the selling price was $140,000.Nelson had not sold any of the goods by the end of the year. Required: Prepare Consolidation Entry TI and Consolidation Entry G that are required for 2009.

Bauerly Co.owned 70% of the voting common stock of Devin Co.During 2009,Devin made frequent sales of inventory to Bauerly.There were unrealized gains of $40,000 in the beginning inventory,and $25,000 at the end of the year.Devin reported net income of $137,000 for 2009.Bauerly decided to use the equity method to account for the investment.What is the noncontrolling interest's share of Devin's net income for 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 income from Devin reported on Pepe's books for 2010.

Varton Corp.acquired all of the voting common stock of Caleb Co.on January 1,2009.Varton owned some land with a book value of $84,000 that was sold to Caleb for its fair value of $120,000.How should this transaction be accounted for by the consolidated entity?

What is the purpose of the adjustments to depreciation expense within the consolidation process when there has been an intercompany transfer of a depreciable asset?

Which of the following statements is true regarding inventory transfers between a parent and its subsidiary,using the initial value method?

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 journal entries for Virginia and Stateside to record the sales/purchases during 2009.

Strayten Corp.is a wholly owned subsidiary of Quint Inc.Quint decided to use the initial value method to account for this investment.During 2009,Strayten sold Quint goods which had cost $48,000.The selling price was $64,000.Quint still had one-fourth of the goods on hand at the end of the year. Required: Prepare Consolidation Entry *G,which would have to be recorded at the end of 2010.

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. -What is the consolidated gain or loss on equipment 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 the gain on transfer of equipment reported by Simon for 2009.

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 cost of goods sold.

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 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 2010.

REFERENCE: Ref.05_09 Stiller Company,an 80% owned subsidiary of Leo Company,purchased land from Leo on March 1,2009,for $75,000.The land originally cost Leo $60,000.Stiller reported net income of $125,000 and $140,000 for 2009 and 2010,respectively.Leo uses the equity method to account for its investment. -Compute income from Stiller on Leo's books for 2010.

How is the gain on an intercompany transfer of land realized?

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 20010?

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 for equipment (net)at December 31,2009?

Why do intercompany transfers between the component companies of a business combination occur so frequently?

Dithers Inc.acquired all of the common stock of Bumstead Corp.on January 1,2009.During 2009,Bumstead sold land to Dithers at a gain.No consolidation entry for the sale of the land was made at the end of 2009.What errors will this omission cause in the consolidated financial statements?