Exam 6: Elimination of Unrealized Profit on Intercompany Sales of Inventory

On January 1,2017,Perch Company purchased an 80% interest in the capital stock of Salmon Company for $3,400,000.At that time,Salmon Company had common stock of $2,200,000 and retained earnings of $620,000.Perch Company uses the cost method to record its investment in Salmon Company.Differences between the fair value and the book value of the identifiable assets of Salmon Company were as follows: The book values of all other assets and liabilities of Salmon Company were equal to their fair values on January 1,2017.The equipment had a remaining life of five years on January 1,2017; the inventory was sold in 2017. Salmon Company's net income and dividends declared in 2017 were as follows: Year 2017 Net Income of $400,000; Dividends Declared of $100,000 Required: Prepare a consolidated statements workpaper for the year ended December 31,2018 using the partially completed worksheet.

P Company owns an 80% interest in S Company.During 2017,S sells merchandise to P for $200,000 at a profit of $40,000.On December 31,2017,50% of this merchandise is included in P's inventory.Income statements for P and S are summarized below: Noncontrolling interest in income for 2017 is:

The following balances were taken from the records of S Company: P Company owns 80% of the common stock of S Company.During 2017,P Company purchased merchandise from S Company for $4,000,000.S Company sells merchandise to P Company at cost plus 25% of cost.On December 31,2017,merchandise purchased from S Company for $1,250,000 remains in the inventory of P Company.On January 1,2017,P Company's inventory contained merchandise purchased from S Company for $525,000.The affiliated companies file a consolidated income tax return.There was no difference between the implied value and the book value of net assets acquired. Required: A.Prepare all workpaper entries necessitated by the intercompany sales of merchandise. B.Compute noncontrolling interest in consolidated income for 2017. C.Compute noncontrolling interest in consolidated net assets on December 31,2017.

P Company owns an 80% interest in S Company.During 2017,S sells merchandise to P for $150,000 at a profit of $30,000.On December 31,2017,50% of this merchandise is included in P's inventory.Income statements for P and S are summarized below: Noncontrolling interest in income for 2017 is:

P Company owns an 80% interest in S Company.During 2017,S sells merchandise to P for $150,000 at a profit of $30,000.On December 31,2017,50% of this merchandise is included in P's inventory.Income statements for P and S are summarized below: Controlling interest in consolidated net income for 2017 is:

P Corporation acquired 80% of S Corporation on January 1,2017 for $240,000 cash when S's stockholders' equity consisted of $100,000 of Common Stock and $30,000 of Retained Earnings.The difference between the price paid by P and the underlying equity acquired in S was allocated solely to a patent amortized over 10 years. P sold merchandise to S during the year in the amount of $30,000.$10,000 worth of inventory is still on hand at the end of the year with an unrealized profit of $4,000.The separate company statements for P and S appear in the first two columns of the partially completed consolidated workpaper. Required: Complete the consolidated workpaper for P and S for the year 2017. P Corporation and Subsidiary Consolidated Statements Workpaper December 31,2017

P Company regularly sells merchandise to its 80%-owned subsidiary,S Corporation.In 2016,P sold merchandise that cost $240,000 to S for $300,000.Half of this merchandise remained in S's December 31,2016 inventory.During 2017,P sold merchandise that cost $375,000 to S for $468,000.Forty percent of this merchandise inventory remained in S's December 31,2017 inventory.Selected income statement information for the two affiliates for the year 2017 is as follows: Consolidated sales revenue for P and Subsidiary for 2017 are:

P Company regularly sells merchandise to its 80%-owned subsidiary,S Corporation.In 2016,P sold merchandise that cost $192,000 to S for $240,000.Half of this merchandise remained in S's December 31,2016 inventory.During 2017,P sold merchandise that cost $300,000 to S for $375,000.Forty percent of this merchandise inventory remained in S's December 31,2017 inventory.Selected income statement information for the two affiliates for the year 2017 is as follows: Consolidated cost of goods sold for P Company and Subsidiary for 2017 are:

P Company regularly sells merchandise to its 80%-owned subsidiary,S Corporation.In 2016,P sold merchandise that cost $192,000 to S for $240,000.Half of this merchandise remained in S's December 31,2016 inventory.During 2017,P sold merchandise that cost $300,000 to S for $375,000.Forty percent of this merchandise inventory remained in S's December 31,2017 inventory.Selected income statement information for the two affiliates for the year 2017 is as follows: Consolidated sales revenue for P and Subsidiary for 2017 are:

Pine Company owns an 80% interest in Salad Company and a 90% interest in Tuna Company.During 2016 and 2017,intercompany sales of merchandise were made by all three companies.Total sales amounted to $2,400,000 in 2016,and $2,700,000 in 2017.The companies sold their merchandise at the following percentages above cost. The amount of merchandise remaining in the 2017 beginning and ending inventories of the companies from these intercompany sales is shown below. Reported net incomes (from independent operations including sales to affiliates)of Pine,Salad,and Tuna for 2017 were $3,600,000,$1,500,000,and $2,400,000,respectively. Required: A.Calculate the amount noncontrolling interest to be deducted from consolidated income in the consolidated income statement for 2017. B.Calculate the controlling interest in consolidated net income for 2017.

A 90% owned subsidiary sold merchandise at a profit to its parent company near the end of 2016.Under the partial equity method,the workpaper entry in 2017 to recognize the intercompany profit in beginning inventory realized during 2017 includes a debit to:

The amount of intercompany profit eliminated is the same under total elimination and partial elimination in the case of:

P Company regularly sells merchandise to its 80%-owned subsidiary,S Corporation.In 2016,P sold merchandise that cost $240,000 to S for $300,000.Half of this merchandise remained in S's December 31,2016 inventory.During 2017,P sold merchandise that cost $375,000 to S for $468,000.Forty percent of this merchandise inventory remained in S's December 31,2017 inventory.Selected income statement information for the two affiliates for the year 2017 is as follows: Consolidated cost of goods sold for P Company and Subsidiary for 2017 are:

Polly,Inc.owns 80% of Saffron,Inc.During 2017,Polly sold goods with a 40% gross profit to Saffron.Saffron sold all of these goods in 2017.For 2017 consolidated financial statements,how should the summation of Polly and Saffron income statement items be adjusted?

In determining controlling interest in consolidated income in the consolidated financial statements,unrealized intercompany profit on inventory acquired by a parent from its subsidiary should:

The noncontrolling interest in consolidated income when the selling affiliate is an 80% owned subsidiary is calculated by multiplying the noncontrolling minority ownership percentage by the subsidiary's reported net income:

Pinta Company owns 90% of the common stock of Simplex Company.Simplex Company sells merchandise to Pinta Company at 25% above cost.During 2016 and 2017 such sales amounted to $800,000 and $1,020,000,respectively.At the end of each year,Pinta Company had in its inventory one-fourth of the amount of goods purchased from Simplex Company during that year.Pinta Company reported income of $1,500,000 from its independent operations in 2016 and $1,720,000 in 2017.Simplex Company reported net income of $600,000 in each year and did not declare any dividends in either year.There were no intercompany sales prior to 2016. Required: A.Prepare,in general journal form,all entries necessary on the 2017 consolidated statements workpaper to eliminate the effects of intercompany sales. B.Calculate the amount of noncontrolling interest to be deducted from consolidated income in the consolidated income statement in 2017. C.Calculate controlling interest in consolidated net income for 2017.

P Corporation acquired a 60% interest in S Corporation on January 1,2017,at book value equal to fair value.During 2017,P sold merchandise that cost $225,000 to S for $315,000.One-third of this merchandise remained in S's inventory at December 31,2017.S reported net income of $200,000 for 2017.P's income from S for 2017 is:

The workpaper entry in the year of sale to eliminate unrealized intercompany profit in ending inventory includes a:

Determination of the noncontrolling interest in consolidated net income differs depending on whether intercompany sales are downstream or upstream.Explain the difference in calculating noncontrolling interest for downstream and upstream sales.