Exam 6: Intercompany Inventory Transactions

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.

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

Pluto Company owns 100 percent of the capital stock of both Saturn Corporation and Sol Corporation.Saturn purchases merchandise inventory from Sol at 125 percent of Sol's cost.During 20X8,Sol sold inventory to Saturn that it had purchased for $25,000.Saturn sold all of this merchandise to unrelated customers for $56,892 during 20X8.In preparing combined financial statements for 20X8,Pluto's bookkeeper disregarded the common ownership of Saturn and Sol. -Based on the information given above,what amount should be eliminated from cost of goods sold in the combined income statement for 20X8?

Consolidated net income for a parent and its 80 percent owned subsidiary should be computed by eliminating:

Pepper Corporation owns 75 percent of Salt Company's voting shares.During 20X8,Pepper produced 50,000 chairs at a cost of $79 each and sold 35,000 chairs to Salt for $90 each.Salt sold 18,000 of the chairs to unaffiliated companies for $117 each prior to December 31,20X8,and sold the remainder in early 20X9 to unaffiliated companies 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 20X9?

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?

Pole Company acquired 80 percent ownership of South Company's voting shares on January 1,20X8,at underlying book value.The fair value of the noncontrolling interest on that date was equal to 20 percent of the book value of South Company.During 20X8,Pole purchased inventory for $30,000 and sold the full amount to South Company for $50,000.On December 31,20X8,South's ending inventory included $10,000 of items purchased from Pole.Also in 20X8,South purchased inventory for $80,000 and sold the units to Pole for $100,000.Pole included $30,000 of its purchase from South in ending inventory on December 31,20X8.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?

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?

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

Pink Corporation owns 80 percent of Sink Company's voting shares.During 20X4,Pink produced 60,000 smart phones at a cost of $62 each and sold 45,000 smart phones to Sink for $93 each.Sink sold 26,000 of the smart phones to unaffiliated companies for $128 each prior to December 31,20X4,and sold the remainder in early 20X5 to unaffiliated companies for $133 each.Both companies use the perpetual inventory systems. -Based on the information given above,what amount of cost of goods sold did Sink record in 20X4?

Pink Corporation owns 80 percent of Sink Company's voting shares.During 20X4,Pink produced 60,000 smart phones at a cost of $62 each and sold 45,000 smart phones to Sink for $93 each.Sink sold 26,000 of the smart phones to unaffiliated companies for $128 each prior to December 31,20X4,and sold the remainder in early 20X5 to unaffiliated companies for $133 each.Both companies use the perpetual inventory systems. -Based on the information given above,what amount of cost of goods must be eliminated from the consolidated income statement for 20X4?

Pink Corporation owns 80 percent of Sink Company's voting shares.During 20X4,Pink produced 60,000 smart phones at a cost of $62 each and sold 45,000 smart phones to Sink for $93 each.Sink sold 26,000 of the smart phones to unaffiliated companies for $128 each prior to December 31,20X4,and sold the remainder in early 20X5 to unaffiliated companies for $133 each.Both companies use the perpetual inventory systems. -Based on the information given above,what amount of cost of goods must be eliminated from the consolidated income statement for 20X5?

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:

Pluto Company owns 100 percent of the capital stock of both Saturn Corporation and Sol Corporation.Saturn purchases merchandise inventory from Sol at 125 percent of Sol's cost.During 20X8,Sol sold inventory to Saturn that it had purchased for $25,000.Saturn sold all of this merchandise to unrelated customers for $56,892 during 20X8.In preparing combined financial statements for 20X8,Pluto's bookkeeper disregarded the common ownership of Saturn and Sol. -Based on the information given above,by what amount was unadjusted revenue overstated in the combined income statement for 20X8?

Pants Company and Shirt Company both produce and purchase fabric for resale each period and frequently sell to each other.Since Pants Company holds 80 percent ownership of Shirt Company,Pants' controller compiled the following information with regard to intercompany transactions between the two companies in 20X7 and 20X8: Required: a.Give the consolidating 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.

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?

Perth Corporation owns 90 percent of Sydney Company's stock.At the end of 20X8,Perth and Sydney reported the following partial operating results and inventory balances: Perth regularly prices its products at cost plus a 30 percent markup for profit.Sydney prices its sales at cost plus a 10 percent markup.The total sales reported by Perth and Sydney 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?

On January 1,20X1,Picture Company acquired 70 percent ownership of Seven Corporation 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 Seven Corporation.On April 25,20X1,Seven purchased inventory from Picture for $45,000.Seven sold the entire inventory to an unaffiliated company for $58,000 on October 12,20X1.Picture had produced the inventory sold to Seven for $38,000.The companies had no other transactions during 20X1. -Based on the information given above,what amount of cost of goods sold will be reported in the 20X1 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 defer the unrealized gross profit on inventory sales to Shove in 20X1?

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?