Exam 5: Consolidated Financial Statements - Intercompany Asset Transactions

How do upstream and downstream inventory transfers differ in their effect on a year-end consolidation?

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 total of consolidated revenues?

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 credit entry in the consolidated worksheet 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 amortization of gain for 2009 for consolidation purposes.

Gibson Corp.owned a 90% interest in Sparis Co.Sparis frequently made sales of inventory to Gibson.The sales,which include a markup over cost of 25%,were $420,000 in 2009 and $500,000 in 2010.At the end of each year,Gibson still owned 30% of the goods.Net income for Sparis was $912,000 during 2010.What was the noncontrolling interest's share of Sparis' net income for 2010?

Norek Corp.owned 70% of the voting common stock of Thelma Co.On January 2,2009,Thelma sold a parcel of land to Norek.The land had a book value of $32,000 and was sold to Norek for $45,000.Thelma's reported net income for 2009 was $119,000.What is the noncontrolling interest's share of Thelma's net income?

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. -Assuming that the transfers were from Skillet Co.to Pot Co. ,what are consolidated sales and cost of goods sold?

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 the gain recognized by Smeder Company relating to the equipment for 2009.

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. -Dalton Corp.owned 70% of the outstanding common stock of Shrugs Inc.On January 1,2007,Dalton acquired a building with a ten-year life for $420,000.No salvage value was anticipated and the building was to be depreciated on the straight-line basis.On January 1,2009,Dalton sold this building to Shrugs for $392,000.At that time,the building had a remaining life of eight years but still no expected salvage value.In preparing financial statements for 2009,how does this transfer affect the calculation of Dalton's share of consolidated net income?

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 consolidated gain or loss relating to the land for 2011.

On April 7,2009,Pate Corp.sold land to Shannahan Co. ,its subsidiary.From a consolidated point of view,when will the gain on this transfer actually be earned?

Hambly Corp.owned 80% of the voting common stock of Stroban Co.During 2009,Stroban sold a parcel of land to Hambly.The land had a book value of $82,000 and was sold to Hambly for $145,000.Stroban's reported net income for 2009 was $119,000. Required: What was the noncontrolling interest's share of Stroban Co.'s net income?

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 any 2010 consolidation worksheet entries that would be required for this inventory transfer.

Chain Co.owned all of the voting common stock of Shannon Corp.The corporations' balance sheets dated December 31,2009,include the following balances for land: for Chain--$416,000,and for Shannon--$256,000.On the original date of acquisition,the book value of Shannon's land was equal to its fair value.On April 4,2010,Chain sold to Shannon a parcel of land with a book value of $65,000.The selling price was $83,000.There were no other transactions which affected the companies' land accounts during 2010.What is the consolidated balance for land on the 2010 balance sheet?