Exam 5: Consolidated Financial Statements Intra-Entity Asset Transactions

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. Compute the non-controlling interest in Gargiulo's net income for 2014.

During 2012, Von Co. sold inventory to its wholly-owned subsidiary, Lord Co. The inventory cost $30,000 and was sold to Lord for $44,000. From the perspective of the combination, when is the $14,000 gain realized?

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. Compute the equity in earnings of Gargiulo reported on Posito's books for 2014.

Norek Corp. owned 70% of the voting common stock of Thelma Co. On January 2, 2012, 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 2012 was $119,000. What is the non-controlling interest's share of Thelma's net income?

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 2013 for consolidation purposes.

On January 1, 2013, Musial Corp. sold equipment to Matin Inc. (a wholly-owned subsidiary) for $168,000 in cash. The equipment originally cost $140,000 but had a book value of only $98,000 when transferred. On that date, the equipment had a five-year remaining life. Depreciation expense was calculated using the straight-line method. Musial earned $308,000 in net income in 2013 (not including any investment income) while Matin reported $126,000. Assume there is no amortization related to the original investment. What is consolidated net income for 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 Collins' share of Smeder's net income for 2013.

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 2013 consolidation worksheet with regard to the unrealized gross profit of the 2013 intra-entity transfer of merchandise?

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. Which of the following will be included in a consolidation entry for 2013?

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. Compute the equity in earnings of Gargiulo reported on Posito's books for 2012.

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

Fraker, Inc. owns 90 percent of Richards, Inc. and bought $200,000 of Richards' inventory in 2013. The transfer price was equal to 30 percent of the sales price. When preparing consolidated financial statements, what amount of these sales is eliminated?

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

Which of the following statements is true regarding an intra-entity sale of land?

Yoderly Co., a wholly owned subsidiary of Nelson Corp., sold goods to Nelson near the end of 2013. The goods had cost Yoderly $105,000 and the selling price was $140,000. Nelson had not sold any of the goods by the end of the year. Required: Prepare Consolidation Entry TI and Consolidation Entry G that are required for 2013.

For each of the following situations (1 - 10), select the correct entry (A - E) that would be required on a consolidation worksheet. (A.) Debit retained earnings. (B.) Credit retained earnings. (C.) Debit investment in subsidiary. (D.) Credit investment in subsidiary. (E.) None of the above. ___ 1. Upstream beginning inventory profit, using the initial value method. ___ 2. Downstream beginning inventory profit, using the initial value method. ___ 3. Upstream ending inventory profit, using the initial value method. ___ 4. Downstream ending inventory profit, using the initial value method. ___ 5. Upstream transfer of depreciable assets, in the period after transfer, where subsidiary recognizes a gain, using the initial value method. ___ 6. Downstream transfer of depreciable assets, in the period after transfer, where parent recognizes a gain, using the initial value method. ___ 7. Upstream transfer of land, in the period after transfer, where subsidiary recognizes a loss, using the initial value method. ___ 8. Downstream transfer of land, in the period after transfer, where parent recognizes a loss, using the initial value method. ___ 9. Eliminate income from subsidiary, recorded under the equity method. ___ 10. Eliminate recorded amortization of acquisition fair value over book value, recorded under the equity method.

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 Collins' share of Smeder's net income for 2012.

Yukon Co. acquired 75% percent of the voting common stock of Ontario Corp. on January 1, 2013. During the year, Yukon made sales of inventory to Ontario. The inventory cost Yukon $260,000 and was sold to Ontario for $390,000. Ontario still had $60,000 of the goods in its inventory at the end of the year. The amount of unrealized intra-entity profit that should be eliminated in the consolidation process at the end of 2013 is

Dalton Corp. owned 70% of the outstanding common stock of Shrugs Inc. On January 1, 2011, Dalton acquired a building with a ten-year life for $420,000. No salvage value was anticipated and the building was to be depreciated on the straight-line basis. On January 1, 2013, Dalton sold this building to Shrugs for $392,000. At that time, the building had a remaining life of eight years but still no expected salvage value. In preparing financial statements for 2013, how does this transfer affect the calculation of Dalton's share of consolidated net income?

Varton Corp. acquired all of the voting common stock of Caleb Co. on January 1, 2013. Varton owned some land with a book value of $84,000 that was sold to Caleb for its fair value of $120,000. How should this transaction be accounted for by the consolidated entity?