Exam 6: Intercompany Inventory Transactions

Perth Corporation owns 90 percent of Dundee Company's stock.At the end of 20X8,Perth and Dundee reported the following partial operating results and inventory balances: Perth regularly prices its products at cost plus a 30 percent markup for profit.Dundee prices its sales at cost plus a 10 percent markup.The total sales reported by Perth and Dundee include both intercompany sales and sales to nonaffiliates. -Based on the information given above,what amount of sales will be reported in the consolidated income statement for 20X8?

Elvis Company purchases inventory for $70,000 on Mar 19,20X8 and sells it to Graceland Corporation for $95,000 on May 14,20X8.Graceland still holds the inventory on December 31,20X8,and determines that its market value (replacement cost)is $82,000 at that time.Graceland writes the inventory down from $95,000 to its lower market value of $82,000 at the end of the year.Elvis owns 75 percent of Graceland. -Based on the information given above,what amount of cost of goods sold should be eliminated in the consolidation worksheet for 20X8?

44.Colton Company acquired 80 percent ownership of Mota Company's voting shares on January 1,2008,at underlying book value.The fair value of the noncontrolling interest on that date was equal to 20 percent of the book value of Mota Company.During 2008,Colton purchased inventory for $30,000 and sold the full amount to Mota Company for $50,000.On December 31,2008,Mota's ending inventory included $10,000 of items purchased from Colton.Also in 2008,Mota purchased inventory for $80,000 and sold the units to Colton for $100,000.Colton included $30,000 of its purchase from Mota in ending inventory on December 31,2008.Summary income statement data for the two companies revealed the following: Required: a.Compute the amount to be reported as sales in the 20X8 consolidated income statement. b.Compute the amount to be reported as cost of goods sold in the 20X8 consolidated income statement. c.What amount of income will be assigned to the noncontrolling shareholders in the 20X8 consolidated income statement? d.What amount of income will be assigned to the controlling interest in the 20X8 consolidated income statement? Answer: Alternative solution: d Information on consolidated sales was computed in part (a);consolidated cost of goods sold was computed in part (b)and income assigned to the noncontrolling interest was computed in part (c). Learning Objective: 06-04 Prepare equity-method journal entries and elimination entries for the consolidation of a subsidiary following upstream inventory transfers. -Hunter Company and Moss Company both produce and purchase fabric for resale each period and frequently sell to each other.Since Hunter Company holds 80 percent ownership of Moss Company,Hunter's controller compiled the following information with regard to intercompany transactions between the two companies in 20X7 and 20X8: Required: a.Give the eliminating entries required at December 31,20X8,to eliminate the effects of the inventory transfers in preparing a full set of consolidated financial statements. b.Compute the amount of cost of goods sold to be reported in the consolidated income statement for 20X8.

Pilfer Company acquired 90 percent ownership of Scrooge Corporation in 20X7,at underlying book value.On that date,the fair value of noncontrolling interest was equal to 10 percent of the book value of Scrooge Corporation.Pilfer purchased inventory from Scrooge for $90,000 on August 20,20X8,and resold 70 percent of the inventory to unaffiliated companies on December 1,20X8,for $100,000.Scrooge produced the inventory sold to Pilfer for $67,000.The companies had no other transactions during 20X8. -Based on the information given above,what amount of sales will be reported in the 20X8 consolidated income statement?

Push Company owns 60% of Shove Company's outstanding common stock. Intra-entity sales are as follows: -Assume Shove sold the inventory to Push. Using the fully adjusted equity method,what journal entry would be recorded by Push to recognize the realization of the 20X1 deferred intercompany profit and to defer the 20X2 unrealized gross profit on inventory sales to Shove?

Sub Company sells all its output at 20 percent above cost to Par Corporation.Par purchases its entire inventory from Sub.The incomes reported by the companies over the past three years are as follows: Sub Company sold inventory for $300,000,$262,500 and $337,500 in the years 20X6,20X7,and 20X8 respectively.Par Company reported ending inventory of $105,000,$157,500 and $180,000 for 20X6,20X7,and 20X8 respectively.Par acquired 70 percent of the ownership of Sub on January 1,20X6,at underlying book value.The fair value of the noncontrolling interest at the date of acquisition was equal to 30 percent of the book value of Sub Company. -Based on the information given above,what will be the consolidated net income for 20X7?

Perth Corporation owns 90 percent of Dundee Company's stock.At the end of 20X8,Perth and Dundee reported the following partial operating results and inventory balances: Perth regularly prices its products at cost plus a 30 percent markup for profit.Dundee prices its sales at cost plus a 10 percent markup.The total sales reported by Perth and Dundee include both intercompany sales and sales to nonaffiliates. -Based on the information given above,what balance will be reported for inventory in the consolidated balance sheet for December 31,20X8?

ABC Corporation owns 75 percent of XYZ Company's voting shares.During 20X8,ABC produced 50,000 chairs at a cost of $79 each and sold 35,000 chairs to XYZ for $90 each.XYZ sold 18,000 of the chairs to unaffiliated companies for $117 each prior to December 31,20X8,and sold the remainder in early 20X9 for $130 each.Both companies use perpetual inventory systems. -Based on the information given above,what amount of cost of goods sold must be eliminated from the consolidated income statement for 20X8?

Sub Company sells all its output at 20 percent above cost to Par Corporation.Par purchases its entire inventory from Sub.The incomes reported by the companies over the past three years are as follows: Sub Company sold inventory for $300,000,$262,500 and $337,500 in the years 20X6,20X7,and 20X8 respectively.Par Company reported ending inventory of $105,000,$157,500 and $180,000 for 20X6,20X7,and 20X8 respectively.Par acquired 70 percent of the ownership of Sub on January 1,20X6,at underlying book value.The fair value of the noncontrolling interest at the date of acquisition was equal to 30 percent of the book value of Sub Company. -Based on the information given above,what will be the income assigned to controlling interest for 20X7?

On January 1,20X8,Parent Company acquired 90 percent ownership of Subsidiary Corporation,at underlying book value.The fair value of the noncontrolling interest at the date of acquisition was equal to 10 percent of the book value of Subsidiary Corporation.On Mar 17,20X8,Subsidiary purchased inventory from Parent for $90,000.Subsidiary sold the entire inventory to an unaffiliated company for $120,000 on November 21,20X8.Parent had produced the inventory sold to Subsidiary for $62,000.The companies had no other transactions during 20X8. -Based on the information given above,what amount of sales will be reported in the 20X8 consolidated income statement?

During the year a parent makes sales of inventory at a profit to its 75 percent owned subsidiary.The subsidiary also makes sales of inventory at a profit to its parent during the same year.Both the parent and the subsidiary have on hand at the end of the year 20 percent of the inventory acquired from one another.Consolidated revenues for the year should exclude:

Consolidated net income may include the parent's separate operating income plus the parent's share of the subsidiary's reported net income:

Parent Corporation owns 90 percent of Subsidiary 1 Company's stock and 75 percent of Subsidiary 2 Company's stock.During 20X8,Parent sold inventory purchased in 20X7 for $48,000 to Subsidiary 1 for $60,000.Subsidiary 1 then sold the inventory at its cost of $60,000 to Subsidiary 2.Prior to December 31,20X8,Subsidiary 2 sold $45,000 of inventory to a nonaffiliate for $67,000 and held $15,000 in inventory at December 31,20X8. -Based on the information given above,what amount should be reported in the December 31,20X8,consolidated balance sheet as inventory?

Parent Corporation owns 90 percent of Subsidiary 1 Company's stock and 75 percent of Subsidiary 2 Company's stock.During 20X8,Parent sold inventory purchased in 20X7 for $48,000 to Subsidiary 1 for $60,000.Subsidiary 1 then sold the inventory at its cost of $60,000 to Subsidiary 2.Prior to December 31,20X8,Subsidiary 2 sold $45,000 of inventory to a nonaffiliate for $67,000 and held $15,000 in inventory at December 31,20X8. -Based on the information given above,what amount of inventory must be eliminated from the consolidated balance sheet for 20X8?

Parent Corporation owns 90 percent of Subsidiary 1 Company's stock and 75 percent of Subsidiary 2 Company's stock.During 20X8,Parent sold inventory purchased in 20X7 for $48,000 to Subsidiary 1 for $60,000.Subsidiary 1 then sold the inventory at its cost of $60,000 to Subsidiary 2.Prior to December 31,20X8,Subsidiary 2 sold $45,000 of inventory to a nonaffiliate for $67,000 and held $15,000 in inventory at December 31,20X8. -Based on the information given above,what amount of cost of goods sold must be eliminated from the consolidated income statement for 20X8?

The consolidation treatment of profits on inventory transfers that occurred before the business combination depends on whether: I.the companies were independent at that time. II.the sale transaction was the result of arm's-length bargaining.

Push Company owns 60% of Shove Company's outstanding common stock. Intra-entity sales are as follows: -Assume Push sold the inventory to Shove. Using the fully adjusted equity method,what journal entry would be recorded by Push to recognize the realization of the 20X1 deferred intercompany profit and to defer the 20X2 unrealized gross profit on inventory sales to Shove?

On January 1,20X7,Jones Company acquired 90 percent of the outstanding common stock of Smith Corporation for $1,242,000.On that date,the fair value of noncontrolling interest was equal to $138,000.The entire differential was related to land held by Smith.At the date of acquisition,Smith had common stock outstanding of $520,000,additional paid-in capital of $200,000,and retained earnings of $540,000.During 20X7,Smith sold inventory to Jones for $440,000.The inventory originally cost Smith $360,000.By year-end,30 percent was still in Jones' ending inventory.During 20X8,the remaining inventory was resold to an unrelated customer.Both Jones and Smith use perpetual inventory systems. Income and dividend information for both Jones and Smith for 20X7 and 20X8 are as follows: Assume Jones uses the cost method to account for its investment in Smith. Required: a.Present the worksheet elimination entries necessary to prepare consolidated financial statements for 20X7. b.Present the worksheet elimination entries necessary to prepare consolidated financial statements for 20X8.

Sub Company sells all its output at 20 percent above cost to Par Corporation.Par purchases its entire inventory from Sub.The incomes reported by the companies over the past three years are as follows: Sub Company sold inventory for $300,000,$262,500 and $337,500 in the years 20X6,20X7,and 20X8 respectively.Par Company reported ending inventory of $105,000,$157,500 and $180,000 for 20X6,20X7,and 20X8 respectively.Par acquired 70 percent of the ownership of Sub on January 1,20X6,at underlying book value.The fair value of the noncontrolling interest at the date of acquisition was equal to 30 percent of the book value of Sub Company. -Based on the information given above,what will be the income to controlling interest for 20X8?

Pilfer Company acquired 90 percent ownership of Scrooge Corporation in 20X7,at underlying book value.On that date,the fair value of noncontrolling interest was equal to 10 percent of the book value of Scrooge Corporation.Pilfer purchased inventory from Scrooge for $90,000 on August 20,20X8,and resold 70 percent of the inventory to unaffiliated companies on December 1,20X8,for $100,000.Scrooge produced the inventory sold to Pilfer for $67,000.The companies had no other transactions during 20X8. -Based on the information given above,what amount of cost of goods sold will be reported in the 20X8 consolidated income statement?