Exam 6: Intercompany Inventory Transactions

Pole Corporation owns 65 percent of Stick Company's stock.At the end of 20X3,Pole and Stick reported the following partial operating results and inventory balances: Pole regularly prices its products at cost plus a 40 percent markup for profit.Stick prices its sales at cost plus a 25 percent markup.The total sales reported by Pole and Stick 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 20X3?

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 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 1,20X8,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 consolidated net income will be assigned to the controlling shareholders for 20X8?

Pisa Company acquired 75 percent of Siena Company on January 1,20X3 for $712,500.The fair value of the noncontrolling interest was equal to 25 percent of book value.On the date of acquisition,Siena had common stock outstanding of $300,000 and a balance in retained earnings of $650,000.During 20X3,Siena purchased inventory for $35,000 and sold it to Pisa for $50,000.Of this amount,Pisa reported $20,000 in ending inventory in 20X3 and later sold it in 20X4.In 20X4,Pisa sold inventory it had purchased for $40,000 to Siena for $60,000.Siena sold $45,000 of this inventory in 20X4. Income and dividend information for Siena for 20X3 and 20X4 are as follows: Pisa Company uses the fully adjusted equity method. Required: a.Present the worksheet consolidation entries necessary to prepare consolidated financial statements for 20X3. b.Present the worksheet consolidation entries necessary to prepare consolidated financial statements for 20X4.

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 sales must be eliminated from the consolidated income statement for 20X8?

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 did Pepper record in 20X8?

Potter Company acquired 75 percent ownership of Snape Corporation in 20X5,at underlying book value.On that date,the fair value of the noncontrolling interest was equal to 25 percent of the book value of Snape Corporation.Potter purchased inventory from Snape for $150,000 on July 24,20X6,and resold 90 percent of the inventory to unaffiliated companies on November 11,20X6,for $160,000.Snape produced the inventory sold to Potter for $120,000.The companies had no other transactions during 20X6. -Based on the information given above,what amount of consolidated net income will be assigned to the controlling interest for 20X6?

Pole Corporation owns 65 percent of Stick Company's stock.At the end of 20X3,Pole and Stick reported the following partial operating results and inventory balances: Pole regularly prices its products at cost plus a 40 percent markup for profit.Stick prices its sales at cost plus a 25 percent markup.The total sales reported by Pole and Stick 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 31,20X3?

Pirate Corporation acquired 85 percent of Ship Company's voting shares of stock in 20X7.During 20X8,Pirate purchased 50,000 circuit boards for $15 each and sold 28,000 of them to Ship for $20 each.Ship sold all of the units to unrelated entities prior to December 31,20X8,for $30 each.Both companies use perpetual inventory systems. Which worksheet consolidating entry is needed in preparing consolidated financial statements for 20X8 to remove all effects of the intercompany sale?

When there are intercompany sales of inventory during the year and a three-part consolidation worksheet is prepared,consolidation entries related to the intercompany sales: I.Always are needed. II.Are not needed if the entire inventory is resold to unrelated parties prior to the end of the year.

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 noncontrolling interest 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 consolidated net income for 20X6?

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

Which of the following are examples of intercompany balances and transactions that must be eliminated in preparing consolidated financial statements? I.Security holdings II.Interest and dividends III.Sales and purchases

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 Pink record in 20X4?

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 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 sales will be reported in the 20X1 consolidated income statement?

On January 1,20X7,Pepper Company acquired 90 percent of the outstanding common stock of Salt 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 Salt.At the date of acquisition,Salt had common stock outstanding of $520,000,additional paid-in capital of $200,000,and retained earnings of $540,000.During 20X7,Salt sold inventory to Pepper for $440,000.The inventory originally cost Salt $360,000.By year-end,30 percent was still in Pepper' ending inventory.During 20X8,the remaining inventory was resold to an unrelated customer.Both Pepper and Salt use perpetual inventory systems. Income and dividend information for both Pepper and Salt for 20X7 and 20X8 are as follows: Assume Pepper uses the modified equity method to account for its investment in Salt. Required: a.Present the worksheet consolidation entries necessary to prepare consolidated financial statements for 20X7. b.Present the worksheet consolidation entries necessary to prepare consolidated financial statements for 20X8.

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 20X8?