Exam 5: Consolidated Financial Statementsintra-Entity Asset Transactions

Pepe, Incorporated acquired 60% of Devin Company on January 1, 2010. On that date Devin sold equipment to Pepe for $45,000. The equipment had a cost of $120,000 and accumulated depreciation of $66,000 with a remaining life of 9 years. Devin reported net income of $300,000 and $325,000 for 2010 and 2011, respectively. Pepe uses the equity method to account for its investment in Devin. Compute the non-controlling interest in the net income of Devin for 2010.

Several years ago Polar Inc. acquired an 80% interest in Icecap Co. The book values of Icecap's asset and liability accounts at that time were considered to be equal to their fair values. Polar's acquisition value corresponded to the underlying book value of Icecap so that no allocations or goodwill resulted from the transaction. The following selected account balances were from the individual financial records of these two companies as of December 31, 2011: Assume that Polar sold inventory to Icecap at a markup equal to 25% of cost. Intra-entity transfers were $130,000 in 2010 and $165,000 in 2011. Of this inventory, $39,000 of the 2010 transfers were retained and then sold by Icecap in 2011, while $55,000 of the 2011 transfers were held until 2012. Required: For the consolidated financial statements for 2011, determine the balances that would appear for the following accounts: (1) Cost of Goods Sold, (2) Inventory, and (3) Non-controlling Interest in Subsidiary's Net Income.

When is the gain on an intra-entity transfer of land realized?

Which of the following statements is true regarding inventory transfers between a parent and its subsidiary, using the initial value method?

Strickland Company sells inventory to its parent, Carter Company, at a profit during 2010. One-third of the inventory is sold by Carter in 2010. In the consolidation worksheet for 2010, which of the following choices would be a credit entry to eliminate the intra-entity transfer of inventory?

How does a gain on an intra-entity sale of equipment affect the calculation of a non-controlling interest?

On January 1, 2011, Pride, Inc. acquired 80% of the outstanding voting common stock of Strong Corp. for $364,000. There is no active market for Strong's stock. 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, 2011, before preparing the consolidated worksheet, the financial statements appeared as follows: During 2011, 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 consolidated total for inventory at December 31, 2011?

King Corp. owns 85% of James Co. King uses the equity method to account for this investment. During 2011, King sells inventory to James for $500,000. The inventory originally cost King $420,000. At 12/31/11, 25% of the goods were still in James' inventory. Required: Prepare the Consolidation Entry TI and Consolidation Entry G for the consolidation worksheet.

Norek Corp. owned 70% of the voting common stock of Thelma Co. On January 2, 2010, 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 2010 was $119,000. What is the non-controlling interest's share of Thelma's net income?

When comparing the difference between an upstream and downstream transfer of inventory, and using the initial value method, which of the following statements is true when there is a non-controlling interest?

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 2010 and $500,000 in 2011. At the end of each year, Gibson still owned 30% of the goods. Net income for Sparis was $912,000 during 2011. What was the non-controlling interest's share of Sparis' net income for 2011?

Gargiulo Company, a 90% owned subsidiary of Posito Corporation, sells inventory to Posito at a 25% profit on selling price. The following data are available pertaining to intra-entity purchases. Gargiulo was acquired on January 1, 2010. Assume the equity method is used. The following data are available pertaining to Gargiulo's income and dividends. Compute the non-controlling interest in Gargiulo's net income for 2010.

Patti Company owns 80% of the common stock of Shannon, Inc. In the current year, Patti reports sales of $10,000,000 and cost of goods sold of $7,500,000. For the same period, Shannon has sales of $200,000 and cost of goods sold of $160,000. During the year, Patti sold merchandise to Shannon for $60,000 at a price based on the normal markup. At the end of the year, Shannon still possesses 30 percent of this inventory. Compute consolidated sales.

Webb Co. acquired 100% of Rand Inc. on January 5, 2011. During 2011, Webb sold goods to Rand for $2,400,000 that cost Webb $1,800,000. Rand still owned 40% of the goods at the end of the year. Cost of goods sold was $10,800,000 for Webb and $6,400,000 for Rand. What was consolidated cost of goods sold?

X-Beams Inc. owned 70% of the voting common stock of Kent Corp. During 2011, Kent made several sales of inventory to X-Beams. The total selling price was $180,000 and the cost was $100,000. At the end of the year, 20% of the goods were still in X-Beams' inventory. Kent's reported net income was $300,000. What was the non-controlling interest in Kent's net income?

Patti Company owns 80% of the common stock of Shannon, Inc. In the current year, Patti reports sales of $10,000,000 and cost of goods sold of $7,500,000. For the same period, Shannon has sales of $200,000 and cost of goods sold of $160,000. During the year, Patti sold merchandise to Shannon for $60,000 at a price based on the normal markup. At the end of the year, Shannon still possesses 30 percent of this inventory. Compute consolidated cost of goods sold.

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

What is the impact on the non-controlling interest of a subsidiary when there are downstream transfers of inventory between the parent and subsidiary companies?

Parent sold land to its subsidiary for a gain in 2008. The subsidiary sold the land externally for a gain in 2011. Which of the following statements is true?

Pepe, Incorporated acquired 60% of Devin Company on January 1, 2010. On that date Devin sold equipment to Pepe for $45,000. The equipment had a cost of $120,000 and accumulated depreciation of $66,000 with a remaining life of 9 years. Devin reported net income of $300,000 and $325,000 for 2010 and 2011, respectively. Pepe uses the equity method to account for its investment in Devin. What is the gain or loss on equipment reported by Devin for 2010?