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

On January 1, 2011, 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 2011 (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 2011?

Throughout 2011,Cleveland Co.sold inventory to Leeward Co. ,its subsidiary.From a consolidated point of view,when will the gain on this transfer be earned?

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 consolidated total for equipment (net)at December 31,2011?

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 income from Devin reported on Pepe's books for 2010.

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

On January 1, 2011, 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 2011 (not including any investment income) while Matin reported $126,000. Assume there is no amortization related to the original investment. -Prepare a schedule of consolidated net income and the share to controlling and noncontrolling interests for 2011,assuming that Musial owned only 90% of Matin and the equipment transfer had been upstream

Flintstone Inc.acquired all of Rubble Co.on January 1,2011.Flintstone decided to use the initial value method to account for this investment.During 2011,Flintstone sold to Rubble for $600,000 inventory with a cost of $500,000.At the end of the year 30% of the goods were still in Rubble's inventory. Required: Prepare Consolidation Entry TI for the intra-entity transfer andConsolidation Entry G for the ending inventory adjustment necessary for the consolidation worksheet at 12/31/11.

An intra-entity sale took place whereby the book value exceeded the transfer price of a depreciable asset.Which statement is true for the year following the sale?

Why do intra-entity transfers between the component companies of a business combination occur so frequently?

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,having used the equity method,what adjustment would be made for 2011 regarding the land transfer?

Strayten Corp.is a wholly owned subsidiary of Quint Inc.Quint decided to use the initial value method to account for this investment.During 2010,Strayten sold Quint goods which had cost $48,000.The selling price was $64,000.Quint still had one-eighth of the goods on hand at the end of the year. Required: Prepare Consolidation Entry *G,which would have to be recorded at the end of 2011.

Walsh Company sells inventory to its subsidiary, Fisher Company, at a profit during 2010. 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 2010,which of the following choices would be a debit entry to eliminate unrealized intra-entity gross profit with regard to the 2010 intra-entity sales?

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

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 2011,assuming Carter uses the initial value method of accounting for its investment in Strickland,which of the following choices would be a debit entry to eliminate unrealized intra-entity gross profit with regard to the 2010 intra-entity sales?

What is meant by unrealized inventory gains,and how are they treated on a consolidation worksheet?

Webb Co.acquired 100% of Rand Inc.on January 5,20011.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?

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 noncontrolling interest's share of Thelma's net income?

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. -Included in the amounts for Skillet's sales were Skillet's sales of merchandise to Pot for $140,000.There were no sales from Pot to Skillet.Intra-entity sales had the same markup as sales to outsiders.Pot 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?

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

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: Sales Cost of goods sold Operating expenses Retained earnings, 1/1/11 Inventory Buildings (net) Investment income Polar quad896,000 406,000 210,000 1,036,000 484,000 501,000 not given Icecap \ 504,000 276,000 147,000 252,000 154,000 220,000 -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)Noncontrolling Interest in Subsidiary's Net Income.