The workpaper entry in the year of sale to eliminate unrealized intercompany profit in ending inventory includes a a.. Under the partial equity method, the workpaper entry in 2011 to rec
Trang 1Chapter 6 Elimination of Unrealized Profit on Intercompany Sales of Inventory
d Noncontrolling interest is affected by all sales
3 Failure to eliminate intercompany sales would result in an overstatement of consolidated
a net income
b gross profit
c cost of sales
d all of these
4 Pratt Company owns 80% of Storey Company’s common stock During 2011, Storey sold $400,000
of merchandise to Pratt At December 31, 2011, one-fourth of the merchandise remained in Pratt’s inventory In 2011, gross profit percentages were 25% for Pratt and 30% for Storey The amount of unrealized intercompany profit that should be eliminated in the consolidated statements is
a $80,000
b $24,000
c $30,000
d $25,000
5 The noncontrolling interest’s share of the selling affiliate’s profit on intercompany sales is
considered to be realized under
a partial elimination
b total elimination
c 100% elimination
d both total and 100% elimination
6 The workpaper entry in the year of sale to eliminate unrealized intercompany profit in ending
inventory includes a
a credit to Ending Inventory (Cost of Sales)
b credit to Sales
c debit to Ending Inventory (Cost of Sales)
d debit to Inventory - Balance Sheet
Trang 27 Perez Company acquired an 80% interest in Seaman Company in 2010 In 2011 and 2012, Sutton
reported net income of $400,000 and $480,000, respectively During 2011, Seaman sold $80,000 of merchandise to Perez for a $20,000 profit Perez sold the merchandise to outsiders during 2012 for
$140,000 For consolidation purposes, what is the noncontrolling interest’s share of Seaman's 2011 and 2012 net income?
a $90,000 and $96,000
b $100,000 and $76,000
c $84,000 and $92,000
d $76,000 and $100,000
8 A 90% owned subsidiary sold merchandise at a profit to its parent company near the end of 2010
Under the partial equity method, the workpaper entry in 2011 to recognize the intercompany profit
in beginning inventory realized during 2011 includes a debit to
a Retained Earnings - P
b Noncontrolling interest
c Cost of Sales
d both Retained Earnings - P and Noncontrolling Interest
9 The noncontrolling interest in consolidated income when the selling affiliate is an 80% owned
subsidiary is calculated by multiplying the noncontrolling minority ownership percentage by the subsidiary’s reported net income
a plus unrealized profit in ending inventory less unrealized profit in beginning inventory
b plus realized profit in ending inventory less realized profit in beginning inventory
c less unrealized profit in ending inventory plus realized profit in beginning inventory
d less realized profit in ending inventory plus realized profit in beginning inventory
10 In determining controlling interest in consolidated income in the consolidated financial statements,
unrealized intercompany profit on inventory acquired by a parent from its subsidiary should:
a not be eliminated
b be eliminated in full
c be eliminated to the extent of the parent company’s controlling interest in the subsidiary
d be eliminated to the extent of the noncontrolling interest in the subsidiary
11 P Company sold merchandise costing $240,000 to S Company (90% owned) for $300,000 At the
end of the current year, one-third of the merchandise remains in S Company’s inventory Applying the lower-of- cost-or-market rule, S Company wrote this inventory down to $92,000 What amount
of intercompany profit should be eliminated on the consolidated statements workpaper?
a $20,000
b $18,000
c $12,000
d $10,800
12 The material sale of inventory items by a parent company to an affiliated company:
a enters the consolidated revenue computation only if the transfer was the result of arm’s length bargaining
b affects consolidated net income under a periodic inventory system but not under a perpetual inventory system
c does not result in consolidated income until the merchandise is sold to outside parties
d does not require a working paper adjustment if the merchandise was transferred at cost
Trang 313 A parent company regularly sells merchandise to its 80%-owned subsidiary Which of the
following statements describes the computation of noncontrolling interest income?
a the subsidiary’s net income times 20%
b (the subsidiary’s net income x 20%) + unrealized profits in the beginning inventory –
unrealized profits in the ending inventory
c (the subsidiary’s net income + unrealized profits in the beginning inventory – unrealized profits
in the ending inventory) × 20%
d (the subsidiary’s net income + unrealized profits in the ending inventory – unrealized profits in the beginning inventory) × 20%
14 P Corporation acquired a 60% interest in S Corporation on January 1, 2011, at book value equal to
fair value During 2011, P sold merchandise that cost $135,000 to S for $189,000 One-third of this merchandise remained in S’s inventory at December 31, 2011 S reported net income of $120,000 for 2011 P’s income from S for 2011 is:
a $36,000
b $50,400
c $54,000
d $61,200
Use the following information for Questions 15 & 16:
P Company regularly sells merchandise to its 80%-owned subsidiary, S Corporation In 2010, P sold
merchandise that cost $240,000 to S for $300,000 Half of this merchandise remained in S’s December 31,
2010 inventory During 2011, P sold merchandise that cost $375,000 to S for $468,000 Forty percent of this merchandise inventory remained in S’s December 31, 2011 inventory Selected income statement information for the two affiliates for the year 2011 is as follows:
Trang 4Use the following information for Questions 17 & 18:
P Company owns an 80% interest in S Company During 2011, S sells merchandise to P for $200,000 at a profit of $40,000 On December 31, 2011, 50% of this merchandise is included in P’s inventory Income statements for P and S are summarized below:
19 The amount of intercompany profit eliminated is the same under total elimination and partial
elimination in the case of
1 upstream sales where the selling affiliate is a less than wholly owned subsidiary
2 all downstream sales
3 horizontal sales where the selling affiliate is a wholly owned subsidiary
a 1
b 2
c 3
d both 2 and 3
20 Paige, Inc owns 80% of Sigler, Inc During 2011, Paige sold goods with a 40% gross profit to
Sigler Sigler sold all of these goods in 2011 For 2011 consolidated financial statements, how should the summation of Paige and Sigler income statement items be adjusted?
a Sales and cost of goods sold should be reduced by the intercompany sales
b Sales and cost of goods sold should be reduced by 80% of the intercompany sales
c Net income should be reduced by 80% of the gross profit on intercompany sales
d No adjustment is necessary
21 P Corporation acquired a 60% interest in S Corporation on January 1, 2011, at book value equal to
fair value During 2011, P sold merchandise that cost $225,000 to S for $315,000 One-third of this merchandise remained in S’s inventory at December 31, 2011 S reported net income of $200,000 for 2011 P’s income from S for 2011 is:
a $60,000
b $90,000
c $120,000
d $102,000
Trang 5Use the following information for Questions 22 & 23:
P Company regularly sells merchandise to its 80%-owned subsidiary, S Corporation In 2010, P sold
merchandise that cost $192,000 to S for $240,000 Half of this merchandise remained in S’s December 31,
2010 inventory During 2011, P sold merchandise that cost $300,000 to S for $375,000 Forty percent of this merchandise inventory remained in S’s December 31, 2011 inventory Selected income statement information for the two affiliates for the year 2011 is as follows:
Use the following information for Questions 24 & 25:
P Company owns an 80% interest in S Company During 2011, S sells merchandise to P for $150,000 at a profit of $30,000 On December 31, 2011, 50% of this merchandise is included in P’s inventory Income statements for P and S are summarized below:
Trang 6Problems
6-1 On January 1, 2011, Palmer Company purchased a 90% interest in Sauder Company for $2,800,000
At that time, Sauder had $1,840,000 of common stock and $360,000 of retained earnings The difference between implied and book value was allocated to the following assets of Sauder
Company:
Plant and equipment (net) 240,000
The plant and equipment had a 10-year remaining useful life on January 1, 2011
During 2011, Palmer sold merchandise to Sauder at a 20% markup above cost At December 31,
2011, Sauder still had $180,000 of merchandise in its inventory that it had purchased from Palmer
In 2011, Palmer reported net income from independent operations of $1,600,000, while Sauder reported net income of $600,000
Required:
A Prepare the workpaper entry to allocate, amortize, and depreciate the difference between
implied and book value for 2011
B Calculate controlling interest in consolidated net income for 2011
6-2 Percy Company owns 80% of the common stock of Smyth Company Percy sells merchandise to
Smyth at 20% above cost During 2011 and 2012, intercompany sales amounted to $1,080,000 and
$1,200,000 respectively At the end of 2011, Smyth had one-fifth of the goods purchased that year from Percy in its ending inventory Smyth’s 2012 ending inventory contained one-fourth of that year’s purchases from Percy There were no intercompany sales prior to 2011
Percy reported net income from its own operations of $720,000 in 2011 and $760,000 in 2012 Smyth reported net income of $400,000 in 2011 and $460,000 in 2012 Neither company declared dividends in either year
Required:
A Prepare in general journal form all entries necessary on the consolidated statements workpapers
to eliminate the effects of the intercompany sales for both 2011 and 2012
B Calculate controlling interest in consolidated net income for 2012
6-3 Payton Company owns 90% of the common stock of Sanders Company Sanders Company sells
merchandise to Payton Company at 25% above cost During 2010 and 2011 such sales amounted to
$800,000 and $1,020,000, respectively At the end of each year, Payton Company had in its
inventory one-fourth of the amount of goods purchased from Sanders Company during that year Payton Company reported income of $1,500,000 from its independent operations in 2010 and
$1,720,000 in 2011 Sanders Company reported net income of $600,000 in each year and did not declare any dividends in either year There were no intercompany sales prior to 2010
Trang 7C Calculate controlling interest in consolidated net income for 2011
6-4 Powers Company owns an 80% interest in Smiley Company and a 90% interest in Toro Company
During 2010 and 2011, intercompany sales of merchandise were made by all three companies Total sales amounted to $2,400,000 in 2010, and $2,700,000 in 2011 The companies sold their merchandise at the following percentages above cost
The amount of merchandise remaining in the 2011 beginning and ending inventories of the
companies from these intercompany sales is shown below
Merchandise Remaining in Beginning Inventory
Sold by
Merchandise Remaining in Ending Inventory
Trang 86-5 The following balances were taken from the records of S Company:
P Company owns 80% of the common stock of S Company During 2011, P Company purchased merchandise from S Company for $4,000,000 S Company sells merchandise to P Company at cost plus 25% of cost On December 31, 2011, merchandise purchased from S Company for $1,250,000 remains in the inventory of P Company On January 1, 2011, P Company’s inventory contained merchandise purchased from S Company for $525,000 The affiliated companies file a consolidated income tax return There was no difference between the implied value and the book value of net assets acquired
Required:
A Prepare all workpaper entries necessitated by the intercompany sales of merchandise
B Compute noncontrolling interest in consolidated income for 2011
C Compute noncontrolling interest in consolidated net assets on December 31, 2011
6-6
P Corporation acquired 80% of S Corporation on January 1, 2011 for $240,000 cash when S’s stockholders’ equity consisted of $100,000 of Common Stock and $30,000 of Retained Earnings The difference between the price paid by P and the underlying equity acquired in S was allocated solely to a patent amortized over 10 years
P sold merchandise to S during the year in the amount of $30,000 $10,000 worth of
inventory is still on hand at the end of the year with an unrealized profit of $4,000 The separate company statements for P and S appear in the first two columns of the partially completed
consolidated workpaper
Required:
Complete the consolidated workpaper for P and S for the year 2011
Trang 9P Corporation and Subsidiary Consolidated Statements Workpaper
at December 31, 2011
Trang 106-7 On January 1, 2011, Porter Company purchased an 80% interest in the capital stock of Shilo
Company for $3,400,000 At that time, Shilo Company had common stock of $2,200,000 and retained earnings of $620,000 Porter Company uses the cost method to record its investment in Shilo Company Differences between the fair value and the book value of the identifiable assets of Shilo Company were as follows:
Fair Value in Excess of Book Value
The book values of all other assets and liabilities of Shilo Company were equal to their fair values
on January 1, 2011 The equipment had a remaining life of five years on January 1, 2011; the inventory was sold in 2011
Shilo Company’s net income and dividends declared in 2011 were as follows:
Year 2011 Net Income of $400,000; Dividends Declared of $100,000
Required:
Prepare a consolidated statements workpaper for the year ended December 31, 2012 using the partially completed worksheet
Trang 11PORTER COMPANY AND SUBSIDIARY Consolidated Statements Workpaper For the Year Ended December 31, 2012
Income Statement
Sales 4,400,000 1,800,000
Dividend Income 192,000
Total Revenue 4,592,000 1,800,000
Cost of Goods Sold 3,600,000 800,000
Depreciation Expense 160,000 120,000
Other Expenses 240,000 200,000
Total Cost & Expenses 4,000,000 1,120,000
Net/Consolidated Income 592,000 680,000
Noncontrolling Interest in Income
Net Income to Retained Earnings 592,000 680,000
Retained Earnings Statement
1/1 Retained Earnings
Porter Company 2,000,000
Shilo Company 920,000
Net Income from above 592,000 680,000
Dividends Declared
Porter Company (360,000)
Shilo Company (240,000)
12/31 Retained Earnings to
Balance Sheet 2,232,000 1,360,000
Porter Shilo Eliminations Noncontrolling Consolidated Company Company Dr Cr Interest Balances Balance Sheet
Cash 280,000 260,000
Accounts Receivable 1,040,000 760,000
Inventory 960,000 700,000
Investment in Shilo Company 3,400,000
Difference between Implied and Book Value
Land 1,280,000
Plant and Equipment 1,440,000 1,120,000
Total Assets 7,120,000 4,120,000
Accounts Payable 528,000 440,000
Notes Payable 360,000 120,000
Common Stock:
Porter Company 4,000,000
Shilo Company 2,200,000
Retained Earnings from above 2,232,000 1,360,000
1/1 Noncontrolling Interest in Net Assets