Exam 5: Consolidated Financial Statements Intra-Entity Asset Transactions

Edgar Co. acquired 60% of Stendall Co. on January 1, 2013. During 2013, Edgar made several sales of inventory to Stendall. The cost and selling price of the goods were $140,000 and $200,000, respectively. Stendall still owned one-fourth of the goods at the end of 2013. Consolidated cost of goods sold for 2013 was $2,140,000 because of a consolidating adjustment for intra-entity sales less the entire profit remaining in Stendall's ending inventory. How would consolidated cost of goods sold have differed if the inventory transfers had been for the same amount and cost, but from Stendall to Edgar?

Walsh Company sells inventory to its subsidiary, Fisher Company, at a profit during 2012. One-third of the inventory is sold by Walsh uses the equity method to account for its investment in Fisher. In the consolidation worksheet for 2013, which of the following choices would be a credit entry to eliminate unrealized intra-entity gross profit with regard to the 2012 intra-entity sales?

Wilson owned equipment with an estimated life of 10 years when it was acquired for an original cost of $80,000. The equipment had a book value of $50,000 at January 1, 2012. On January 1, 2012, Wilson realized that the useful life of the equipment was longer than originally anticipated, at ten remaining years. On April 1, 2012 Simon Company, a 90% owned subsidiary of Wilson Company, bought the equipment from Wilson for $68,250 and for depreciation purposes used the estimated remaining life as of that date. The following data are available pertaining to Simon's income and dividends: Compute Wilson's share of income from Simon for consolidation for 2014.

On January 1, 2012, Smeder Company, an 80% owned subsidiary of Collins, Inc. transferred equipment with a 10-year life (six of which remain with no salvage value) to Collins in exchange for $84,000 cash. At the date of transfer, Smeder's records carried the equipment at a cost of $120,000 less accumulated depreciation of $48,000. Straight-line depreciation is used. Smeder reported net income of $28,000 and $32,000 for 2012 and 2013, respectively. All net income effects of the intra-entity transfer are attributed to the seller for consolidation purposes. What is the net effect on consolidated net income in 2012 due to the equipment transfer?

On January 1, 2013, 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, 2013, before preparing the consolidated worksheet, the financial statements appeared as follows: During 2013, 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, 2013. What is the consolidated total for inventory at December 31, 2013?

On January 1, 2012, Smeder Company, an 80% owned subsidiary of Collins, Inc. transferred equipment with a 10-year life (six of which remain with no salvage value) to Collins in exchange for $84,000 cash. At the date of transfer, Smeder's records carried the equipment at a cost of $120,000 less accumulated depreciation of $48,000. Straight-line depreciation is used. Smeder reported net income of $28,000 and $32,000 for 2012 and 2013, respectively. All net income effects of the intra-entity transfer are attributed to the seller for consolidation purposes. Compute the gain recognized by Smeder Company relating to the equipment for 2012.

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?

Wilson owned equipment with an estimated life of 10 years when it was acquired for an original cost of $80,000. The equipment had a book value of $50,000 at January 1, 2012. On January 1, 2012, Wilson realized that the useful life of the equipment was longer than originally anticipated, at ten remaining years. On April 1, 2012 Simon Company, a 90% owned subsidiary of Wilson Company, bought the equipment from Wilson for $68,250 and for depreciation purposes used the estimated remaining life as of that date. The following data are available pertaining to Simon's income and dividends: Compute the amortization of gain through a depreciation adjustment for 2012 for consolidation purposes.

Stark Company, a 90% owned subsidiary of Parker, Inc. sold land to Parker on May 1, 2012, for $80,000. The land originally cost Stark $85,000. Stark reported net income of $200,000, $180,000, and $220,000 for 2012, 2013, and 2014, respectively. Parker sold the land purchased from Stark in 2012 for $92,000 in 2014. Compute income from Stark reported on Parker's books for 2014.

Wilson owned equipment with an estimated life of 10 years when it was acquired for an original cost of $80,000. The equipment had a book value of $50,000 at January 1, 2012. On January 1, 2012, Wilson realized that the useful life of the equipment was longer than originally anticipated, at ten remaining years. On April 1, 2012 Simon Company, a 90% owned subsidiary of Wilson Company, bought the equipment from Wilson for $68,250 and for depreciation purposes used the estimated remaining life as of that date. The following data are available pertaining to Simon's income and dividends: Compute Wilson's share of income from Simon for consolidation for 2012.

On January 1, 2012, Smeder Company, an 80% owned subsidiary of Collins, Inc. transferred equipment with a 10-year life (six of which remain with no salvage value) to Collins in exchange for $84,000 cash. At the date of transfer, Smeder's records carried the equipment at a cost of $120,000 less accumulated depreciation of $48,000. Straight-line depreciation is used. Smeder reported net income of $28,000 and $32,000 for 2012 and 2013, respectively. All net income effects of the intra-entity transfer are attributed to the seller for consolidation purposes. For consolidation purposes, what net debit or credit will be made for the year 2012 relating to the accumulated depreciation for the equipment transfer?

Strickland Company sells inventory to its parent, Carter Company, at a profit during 2012. One-third of the inventory is sold by Carter in 2012. In the consolidation worksheet for 2013, assuming Carter uses the initial value methd of accounting for its investment in Strickland, which of the following choices would be a credit entry to eliminate unrealized intra-entity gross profit with regard to the 2012 intra-entity sales?

How is the gain on an intra-entity transfer of a depreciable asset realized?

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

Chain Co. owned all of the voting common stock of Shannon Corp. The corporations' balance sheets dated December 31, 2012, include the following balances for land: for Chain--$416,000, and for Shannon-$256,000. On the original date of acquisition, the book value of Shannon's land was equal to its fair value. On April 4, 2013, Chain sold to Shannon a parcel of land with a book value of $65,000. The selling price was $83,000. There were no other transactions which affected the companies' land accounts during 2012. What is the consolidated balance for land on the 2013 balance sheet?

Prince Corp. owned 80% of Kile Corp.'s common stock. During October 2013, Kile sold merchandise to Prince for $140,000. At December 31, 2013, 50% of this merchandise remained in Prince's inventory. For 2013, gross profit percentages were 30% of sales for Prince and 40% of sales for Kile. The amount of unrealized intra-entity profit in ending inventory at December 31, 2013 that should be eliminated in the consolidation process is

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, 2012. Assume the equity method is used. The following data are available pertaining to Gargiulo's income and dividends. For consolidation purposes, what amount would be debited to cost of goods sold for the 2012 consolidation worksheet with regard to unrealized gross profit of the intra-entity transfer of merchandise?

On January 1, 2013, 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, 2013, before preparing the consolidated worksheet, the financial statements appeared as follows: During 2013, 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, 2013. What is the consolidated total of non-controlling interest appearing in the balance sheet?

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

Walsh Company sells inventory to its subsidiary, Fisher Company, at a profit during 2012. One-third of the inventory is sold by Walsh uses the equity method to account for its investment in Fisher. In the consolidation worksheet for 2012, which of the following choices would be a credit entry to eliminate the intra-entity transfer of inventory?