Exam 5: Consolidated Financial Statements - Intra-Entity Asset Transactions

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, 2010. On January 1, 2010, Wilson realized that the useful life of the equipment was longer than originally anticipated, at ten remaining years. On April 1, 2010Simon 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: Net income \ 100,000 \ 120,000 \ 130,000 Dividends 40,000 50,000 60,000 -Compute the amortization of gain through a depreciation adjustment for 2010 for consolidation purposes.

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

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, 2010. On January 1, 2010, Wilson realized that the useful life of the equipment was longer than originally anticipated, at ten remaining years. On April 1, 2010Simon 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: Net income \ 100,000 \ 120,000 \ 130,000 Dividends 40,000 50,000 60,000 -Compute Wilson's share of income from Simon for consolidation for 2012.

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. Purchases by Posito \ 8,000 \ 12,000 \ 15,000 Ending inventory on Posito's books 1,200 4,000 3,000 Assume the equity method is used. The following data are available pertaining to Gargiulo's income and dividends. Gargiulo's net income \ 70,000 \ 85,000 \ 94,000 Dividends paid by Gargiulo 10,000 10,000 15,000 -For consolidation purposes,what amount would be debited to cost of goods sold for the 2012 consolidation worksheet with regard to the unrealized gross profit of the 2012 intra-entity transfer of merchandise?

Stiller Company, an 80% owned subsidiary of Leo Company, purchased land from Leo on March 1, 2010, for $75,000. The land originally cost Leo $60,000. Stiller reported net income of $125,000 and $140,000 for 2010 and 2011, respectively. Leo uses the equity method to account for its investment. -On a consolidation worksheet,what adjustment would be made for 2010 regarding the land transfer?

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

McGraw Corp.owned all of the voting common stock of both Ritter Co.and Lawler Co.During 2011,Ritter sold inventory to Lawler.The goods had cost Ritter $65,000,and they were sold to Lawler for $100,000.At the end of 2011,Lawler still held 30% of the inventory. Required: How should the sale between Lawler and Ritter be accounted for in a consolidation worksheet? Show worksheet entries to support your answer.

Stark Company, a 90% owned subsidiary of Parker, Inc., sold land to Parker on May 1, 2010, for $80,000. The land originally cost Stark $85,000. Stark reported net income of $200,000, $180,000, and $220,000 for 2010, 2011, and 2012, respectively. Parker sold the land it purchased from Stark in 2010 for $92,000 in 2012. -Compute Stark's reported gain or loss relating to the land for 2012.

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 unrealized intra-entity gross profit with regard to the 2010 intra-entity sales?

On January 1, 2010, 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 2010 and 2011, 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 2010.

On January 1,2011,Race Corp.acquired 80% of the voting common stock of Gallow Inc.During the year,Race sold to Gallow for $450,000 goods which cost $330,000.Gallow still owned 15% of the goods at year-end.Gallow's reported net income was $204,000,and Race's net income was $806,000.Race decided to use the equity method to account for this investment.What was the noncontrolling interest's share of consolidated net income?

Stark Company, a 90% owned subsidiary of Parker, Inc., sold land to Parker on May 1, 2010, for $80,000. The land originally cost Stark $85,000. Stark reported net income of $200,000, $180,000, and $220,000 for 2010, 2011, and 2012, respectively. Parker sold the land it purchased from Stark in 2010 for $92,000 in 2012. -Compute income from Stark reported on Parker's books for 2012.

Varton Corp.acquired all of the voting common stock of Caleb Co.on January 1,2011.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?

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: Revenues \ 420,000 \ 280,000 Cost of goods sold (196,000) (112,000 Operating expenses (28,000) (14,000) Net income \1 96,000 \ 154,000 Retained earnings, 1/1/11 \ 420,000 \ 210,000 Net income (above) 196,000 154,000 Dividends paid Retained earnings, 12/31/11 \ Cash and receivables \ 294,000 \ 126,000 Inventory 210,000 154,000 Investment in Strong Corp 364,000 0 Equipment (net) 616,000 420.000 Total assets \ 1.484,000 \ 700,000 Liabilities \ 588,000 \ 196,000 Common stock 280,000 140,000 Retained earnings, 12/31/11 (above) 616,000 364,000 Total liabilities and stockholders' equity \ 1,484,000 \ 700,000 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 total of consolidated operating expenses?

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

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.

Stiller Company, an 80% owned subsidiary of Leo Company, purchased land from Leo on March 1, 2010, for $75,000. The land originally cost Leo $60,000. Stiller reported net income of $125,000 and $140,000 for 2010 and 2011, respectively. Leo uses the equity method to account for its investment. -Compute the gain or loss on the intra-entity sale of land.

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 noncontrolling interest in Kent's net income?

Fraker,Inc.owns 90 percent of Richards,Inc.and bought $200,000 of Richards' inventory in 2011.The transfer price was equal to 30 percent of the sales price.When preparing consolidated financial statements,what amount of these sales is eliminated?

Pot Co. holds 90% of the common stock of Skillet Co. During 2011, Pot reported sales of $1,120,000 and cost of goods sold of $840,000. For this same period, Skillet had sales of $420,000 and cost of goods sold of $252,000. -The reported sales did not include any intra-entity sales.In addition to the reported amounts,there were intra-entity sales from Pot to Skillet in the amount of $140,000.There were no sales from Skillet to Pot.Intra-entity sales had the same markup as sales to outsiders.Skillet still had 40% of the intra-entity sales as inventory at the end of 2011.What are consolidated sales and cost of goods sold for 2011?