CH 7 Ba

Chapter 07 - Intercompany Inventory Transactions
CHAPTER 7 INTERCOMPANY INVENTORY TRANSACTIONS ANSWERS TO QUESTIONS Q7-1 All inventory transfers between related companies must be eliminated to avoid an overstatement of revenue and cost of goods sold in the consolidated income statement. In addition, when unrealized profits exist at the end of the period, the eliminations are needed to avoid overstating inventory and consolidated net income. Q7-2 An inventory transfer at cost results in an overstatement of sales and cost of goods sold. While net income is not affected, gross profit ratios and other financial statement analysis may be substantially in error if appropriate eliminations are not made. Q7-3 An upstream sale occurs when the parent purchases items from one or more subsidiaries. A downstream sale occurs when the sale is made by the parent to one or more subsidiaries. Knowledge of the direction of sale is important when there are unrealized profits so that the person preparing the consolidation workpaper will know whether to reduce consolidated net income assigned to the controlling interest by the full amount of the unrealized profit (downstream) or reduce consolidated income assigned to the controlling and noncontrolling interests on a proportionate basis (upstream). Q7-4 As in all cases, the total amount of the unrealized profit must be eliminated in preparing the consolidated statements. When the profits are on the parent company's books, consolidated net income and income assigned to the controlling interest are reduced by the full amount of the unrealized profit. Q7-5 Consolidated net income is reduced by the full amount of the unrealized profits. In the upstream sale, the unrealized profits are apportioned between the parent company shareholders and the noncontrolling shareholders. Thus, consolidated net income assigned to the controlling and noncontrolling interests is reduced by a pro rata portion of the unrealized profits. Q7-6 Income assigned to the noncontrolling interest is affected when unrealized profits are recorded on the subsidiary's books as a result of an upstream sale. A downstream sale should have no effect on the income assigned to noncontrolling interest because the profits are on the books of the parent. Q7-7 The basic eliminating entry needed when the item is resold before the end of the period is: Sales Cost of Goods Sold XXXXXX XXXXXX
The debit to sales is based on the intercorporate sale price. This means that only the revenue recorded by the company ultimately selling to the nonaffiliate is to be included in the consolidated income statement. Cost of goods sold is credited for the amount paid by the purchaser on the intercorporate transfer, thereby permitting the cost of goods sold recorded by the initial owner to be reported in the consolidated statement.
7-1
Q7-8 The basic eliminating entry needed when one or more of the items are not resold before the end of the period is: Sales Cost of Goods Sold Inventory XXXXXX XXXXXX XXXXXX
The debit to sales is for the full amount of the transfer price. Inventory is credited for the unrealized profit at the end of the period and cost of goods sold is credited for the amount charged to cost of goods sold by the company making the intercompany sale. Q7-9 Cost of goods sold is reported by the consolidated entity when inventory is sold to an external party. The amount reported as cost of goods sold is based on the amount paid for the inventory when it was produced or purchased from an external party. If inventory has been purchased by one company and sold to a related company, the cost of goods sold recorded on the intercorporate sale must be eliminated. Q7-10 No adjustment to retained earnings is needed if the intercorporate sales have been made at cost or if all intercorporate sales have been resold to an external party in the same accounting period. If not all of the intercorporate sales have been resold by the end of the period, consolidated retained earnings must be reduced by the parent's proportionate share of any unrealized profits. Q7-11 A proportionate share of the realized retained earnings of the subsidiary are assigned to the noncontrolling interest. Any unrealized profits on upstream sales are deducted proportionately from the amount assigned to the noncontrolling interest and consolidated retained earnings. Unrealized profits on downstream sales are deducted entirely from the retained earnings assigned to the consolidated entity. Q7-12 When inventory profits from a prior period intercompany transfer are realized in the current period, the profit is added to consolidated net income and to the income assigned to the shareholders of the company that made the intercompany sale. If the unrealized profits arise from a downstream sale, income assigned to the controlling interest will increase by the full amount of profit realized. When the profits arise from an upstream sale, income assigned to the controlling and noncontrolling interests will be increased proportionately in the period the profit is realized. Thus, knowledge of whether the profits resulted from an upstream or a downstream sale is imperative in assigning consolidated net income to the appropriate shareholder group. Q7-13 Consolidated retained earnings must be reduced by the full amount of any unrealized profit on the parent company books. Q7-14 Consolidated retained earnings must be reduced by the parent's proportionate share of the unrealized profit on the subsidiary's books. Q7-15* Sales between subsidiaries are treated in the same manner as upstream sales. Whenever the profits are on the books of one of the subsidiaries, the unrealized profits at the end of the period are eliminated and consolidated net income and income assigned to the controlling and noncontrolling interests is reduced.
7-2
Q7-16* When a company is acquired in a business combination the transactions occurring before the combination generally are regarded as transactions with unrelated parties and no adjustments or eliminations are needed. All transactions between the companies following the combination must be fully eliminated. SOLUTIONS TO CASES C7-1 Measuring Cost of Goods Sold a. While the rule covers only a part of the elimination needed, Charlie is correct in that the cost of goods sold recorded by the selling company must be eliminated to avoid overstating that caption in the consolidated income statement. b. The rules will result in the proper consolidated totals if rule #1 is expanded to include a debit to sales and a credit to ending inventory for the amount of profit recorded by the company that sold to its affiliate. c. The way in which the rule is stated makes it appear to be incorrect, but it is correct. The rule is appropriate in that the cost of goods sold recorded by the purchasing affiliate is equal to the cost of goods sold to the first owner plus the profit the first owner recorded on the sale. Eliminating these amounts therefore eliminates the appropriate amount of cost of goods sold. If an equal amount of sales is eliminated, the rule should result in proper consolidated financial statement totals. d. The employee would be forced to look at the books of the selling affiliate and determine the difference between the intercorporate sale price and the price it paid to acquire or produce the items. If the items sold to affiliates are routinely produced and costs do not fluctuate greatly, it may be possible to use some form of gross profit ratio to estimate the amount of unrealized profit.
C7-2 Inventory Values and Intercompany Transfers MEMO To: From: Re: President Water Products Corporation , CPA Inventory Sale and Purchase of New Inventory
If Water Products holds only a small percent of the ownership of Plumbers Products and Growinkle Manufacturing, it should have no difficulty in reporting the desired results. This would not be the case if the two companies are subsidiaries of Water Products. If both Plumbers Products and Growinkel are subsidiaries of Water Products, both the sale of inventory to Plumbers Supply and the purchase of inventory from Growinkle Manufacturing must be eliminated. In addition, the unrealized profit on any unsold inventory involved in these transfers must be eliminated in preparing the financial statements for the current period.
7-3
C7-2 (continued) The consolidated income statement should include the same amount of income on the inventory sold to Plumbers Supply and resold during the year as would have been recorded if Water Products had sold the inventory directly to the purchaser. Any income recorded by Water Products on inventory not resold by Plumbers Supply must be eliminated. Similarly, the consolidated income statement should include the same amount of income on the inventory purchased by Water Products and resold during the year as would have been recorded if Growinkle Manufacturing had sold the inventory directly to the purchaser. Any income recorded by Growinkle Manufacturing on inventory not resold by Water Products must be eliminated. Consolidated net income may increase if Plumbers Supply is able to sell the inventory it purchased from Water Products at a higher price than would have been received by Water Products or if it is able to sell a larger number of units. The same can be said for the inventory purchased by Water Products from Growinkle Manufacturing. It is important to recognize that the transfer of inventory between Water Products and its subsidiaries does not in itself generate income for the consolidated entity. An additional level of complexity may arise in this situation if Water Products uses the LIFO inventory method. It might, for example, be forced to carry over its LIFO cost basis on the old inventory sold to Plumbers Supply to the new inventory purchased from Growinkle Manufacturing since it was replaced within the accounting period. Primary citation: ARB 51, Par. 6
7-4
C7-3 Intercorporate Inventory Transfers MEMO To: From: Re: Treasurer Evert Corporation , CPA Inventory Sale to Parent
This memo is prepared in response to your request for information on the appropriate treatment of intercompany inventory transfers in consolidated financial statements. The specific eliminating entries required in this case depend on the valuation assigned to the inventory at December 31, 20X2. Frankle Company sold inventory with a carrying value of $240,000 to Evert for $180,000 on December 20, 20X2. Since the exchange price was well below Frankles cost, consideration should be given to whether the inventory should be reported at $180,000 or $240,000 in the consolidated statements at December 31, 20X2, under the lower-of-cost-or-market rule. While the value of the inventory apparently had fallen below Frankles carrying value, the accounting standards indicate no loss should be recognized when the evidence indicates that cost will be recovered with an approximately normal profit margin upon sale in the ordinary course of business. [ARB 43, Chapter 4, Par. 9] We are told the management of Frankle considered the drop in prices to be temporary and Evert was able to sell the inventory for $70,000 more than the original amount paid by Frankle. It therefore seems appropriate for the consolidated entity to report the inventory at Frankles cost of $240,000 at December 31, 20X2. In preparing the consolidated statements at December 31, 20X2 and 20X3, the effects of the intercompany transfer should be eliminated. [ARB 51, Par. 6] The following eliminating entry is required at December 31, 20X2: E(1) Sales Inventory Cost of Goods Sold 180,000 60,000
240,000
The above entry will increase the carrying value of the inventory to $240,000. Eliminating sales of $180,000 and cost of goods sold of $240,000 will increase consolidated net income by $60,000 and income assigned to the noncontrolling interest by $6,000 ($60,000 x .10). These changes will result in an increase in consolidated retained earnings and the amount assigned to the noncontrolling shareholders in the consolidated balance sheet by $54,000 and $6,000, respectively.
7-5
C7-3 (continued) The following eliminating entry is required at December 31, 20X3: E(2) Cost of Goods Sold Retained Earnings Noncontrolling interest 60,000 54,000 6,000
The above entry will reduce consolidated net income by $60,000 and income assigned to the noncontrolling interest by $6,000 ($60,000 x .10). The credits to retained earnings and noncontrolling interest are needed to bring the beginning balances into agreement with those reported at December 31, 20X2. No eliminations are required for balances reported at December 31, 20X3, because the inventory has been sold to a nonaffiliate prior to year-end. Primary citations: ARB 43, CH 4, Par. 9 ARB 51, Par. 6
C7-4 Unrealized Inventory Profits a. When the amount of unrealized inventory profits on the books of the subsidiary at the beginning of the period is greater than the amount at the end of the period, the income assigned to the noncontrolling interest for the period will exceed a pro rata portion of the reported net income of the subsidiary. b. The subsidiary apparently had less unrealized inventory profit at the end of the period than it did at the start of the period. In addition, the parent must have had more unrealized profit on its books at the end of the period than it did at the beginning. The negative effect of the latter apparently offset the positive effect of the reduction in unrealized profits by the subsidiary. c. The most likely reason is that a substantial amount of the parent company sales was made to its subsidiaries and the cost of goods sold on those items was eliminated in preparing the consolidated statements. d. A loss was recorded by the seller on an intercompany sale of inventory to an affiliate and the purchaser continues to hold the inventory.
7-6
C7-5 Eliminating Inventory Transfers a. If no intercompany sales are eliminated, the income statement may include overstated sales revenue and cost of goods sold. The net impact on income will depend upon whether there were more unrealized profits at the beginning or end of the year. If Ready Building does not hold total ownership of the subsidiaries, the amount of income assigned to noncontrolling shareholders is likely to be incorrect as well. Inventory, current assets and total assets, retained earnings, and stockholders' equity are likely to be overstated if inventories are sold to affiliates at a profit. If the companies pay income taxes on their individual earnings, the amount of income tax expense also will be overstated in the period in which unrealized profits are reported and understated in the period in which the profits are realized. b. Because profit margins vary considerably, the amount of unrealized profit may vary considerably if uneven amounts of product are purchased by affiliates from period to period. Ready Building needs to establish a formal system to monitor intercompany sales. Perhaps the best alternative would be to establish a separate series of accounts to be used solely for intercompany transfers. Alternatively, it may be possible to use unique shipping containers for intercompany sales or to specifically mark the containers in some way to identify the intercompany shipments at the time of receipt. The purchaser might then use a different type of inventory tag or mark these units in some way when the product is received and placed in inventory. Inventory count teams could then easily identify the product when inventories are taken. c. A number of factors might be considered. The most important inventory system is the one used by the company making the intercompany purchase. When intercompany inventory purchases are bunched at the end of the year, the amount of unrealized profit included in ending inventory may be quite different under FIFO versus LIFO. If intercompany purchases are placed in a LIFO inventory base, inventories may be misstated for a period of years before the inventory is resold. Eliminating entries must be made each of the years until resale to avoid a misstatement of assets and equities. In those cases where the intercompany purchases are in high volume and the inventory turns over very quickly, a small amount of inventory left at the end of the period may be immaterial and of little concern. Typically, a parent will align inventory costing methods subsequent to a subsidiary acquisition to avoid problems caused by differences in accounting for the same items or types of items.
7-7
C7-5 (continued) d. It may be necessary to start by looking at intercorporate cash receipts and disbursements to determine the extent of intercorporate sales. One or more months might be selected and all vouchers examined to establish the level of intercorporate sales and the profit margins recorded on the sales. For those products sold throughout the year, it may be possible to estimate for the year as a whole based on an examination of several months. Once total intercompany sales and profit margins have been estimated, the amount of unrealized profit at year end should be estimated. One approach would be to take a physical inventory of the specific product types which have been identified and attempt to trace back using the product identification numbers or shipping numbers to determine what portion of the inventory on hand was purchased from affiliates.
C7-6 Intercompany Profits and Transfers of Inventory a. The intercompany transfers of Xerox (www.xerox.com) between segments are apparently relatively insignificant because they are not reported in the notes to the consolidated financial statements relating to segment reporting. For consolidation purposes, all significant intercompany accounts and transactions are eliminated. b. Exxon Mobil (www.exxonmobil.com) prices intercompany transfers at estimated market prices. The amount of intercompany transfers is large. In the fiscal year ending December 31, 2006, Exxon Mobil reported eliminations of $368 billion of intersegment transfers, which does not include intercompany transfers within segments. This amount represents nearly 50 percent of total reported segment sales. For consolidation purposes, Exxon Mobil eliminates the effects of intercompany transactions. c. Ford Motor Company (www.ford.com) intercompany transfers consist primarily of vehicles, parts, and components manufactured by the company and its subsidiaries, with a smaller amount of financial and other services included. The amount of intercompany transfers is significant, totaling almost $4 billion, but is relatively small in relation to sales to unaffiliated customers. The amount has been decreasing in recent years. The effects of intercompany transfers are eliminated in consolidation.
7-8
SOLUTIONS TO EXERCISES E7-1 Multiple-Choice Questions on Intercompany Inventory Transfers [AICPA Adapted] 1. 2. 3. 4. 5. a c a c c Net assets reported Profit on intercompany sale Proportion of inventory unsold at year end ($60,000 / $240,000) Unrealized profit at year end Amount reported in consolidated statements Inventory reported by Banks ($175,000 + $60,000) Inventory reported by Lamm Total inventory reported Unrealized profit at year end [$50,000 x ($60,000 / $200,000)] Amount reported in consolidated statements $320,000
$48,000 x .25
(12,000) $308,000 $235,000 250,000 $485,000 (15,000) $470,000
6.
7-9
E7-2 Multiple-Choice Questions on the Effects of Inventory Transfers [AICPA Adapted] 1. b Cost of goods sold reported by Park Cost of goods sold reported by Small Total cost of goods sold reported Cost of goods sold reported by Park on sale to Small ($500,000 x .40) Reduction of cost of goods sold reported by Small for profit on intercompany sale [($500,000 x 4 / 5) x .60] Cost of goods sold for consolidated entity Note: $ 800,000 700,000 $1,500,000 (200,000) (240,000) $1,060,000
Answer b in the actual CPA examination question was $1,100,000, requiring candidates to select the closest answer. = = = ($200,000 + $140,000) $308,000 ($26,000 + $19,000) $39,000 Inventory held by Spin ($32,000 x .375) Unrealized profit on sale [($30,000 + $25,000) $52,000] Carrying cost of inventory for Power $12,000 (3,000) $ 9,000
2. 3. 4.
d b c
$32,000 $6,000 $9,000
5.
.20 = $14,000 / [(Stockholders Equity $50,000) + (Patent $20,000)] 14 years = ($28,000 / [(28,000 - $20,000) / 4 years]
6.
E7-3 Multiple Choice Consolidated Income Statement c 1. 2. 3. b c Total income ($86,000 - $47,000) Income assigned to noncontrolling interest [.40($86,000 - $60,000)] Consolidated net income assigned to controlling interest $39,000 (10,400) $28,600
7-10
E7-4 Multiple-Choice Questions Consolidated Balances 1. 2. c a Amount paid by Lorn Corporation Unrealized profit Actual cost Portion sold Cost of goods sold Consolidated sales Cost of goods sold Consolidated net income Income to Dressers noncontrolling interest: Sales Reported cost of sales Report income Portion realized Realized net income Portion to Noncontrolling Interest Income to noncontrolling Interest Income to controlling interest Inventory reported by Lorn Unrealized profit ($45,000 x .20) Ending inventory reported $120,000 (45,000) $ 75,000 x .80 $ 60,000 $140,000 (60,000) $ 80,000 $120,000 (75,000) $ 45,000 x .80 $ 36,000 x .30 (10,800) $ 69,200 $ 24,000 (9,000) $ 15,000
3.
4.
E7-5 Multiple-Choice Questions Consolidated Income Statement 1. 2. a d $20,000 = $30,000 x [($48,000 - $16,000) / $48,000] Sales reported by Movie Productions Inc. Cost of goods sold ($30,000 x 2/3) Consolidated net income $7,000 = [($67,000 - $32,000) x .20] $67,000 (20,000) $47,000
3.
7-11
E7-6 Realized Profit on Intercompany Sale a. Journal entries recorded by Nordway Corporation: (1) (2) (3) Inventory Cash (Accounts Payable) Cash (Accounts Receivable) Sales Cost of Goods Sold Inventory 960,000 750,000 600,000 960,000 750,000 600,000
b.
Journal entries recorded by Olman Company: (1) (2) (3) Inventory Cash (Accounts Payable) Cash (Accounts Receivable) Sales Cost of Goods Sold Inventory 750,000 1,125,000 750,000 750,000 1,125,000 750,000
c.
Eliminating entry: E(1) Sales Cost of Goods Sold 750,000 750,000
7-12
E7-7 Sale of Inventory to Subsidiary a. Journal entries recorded by Nordway Corporation: (1) (2) (3) Inventory Cash (Accounts Payable) Cash (Accounts Receivable) Sales Cost of Goods Sold Inventory 960,000 750,000 600,000 960,000 750,000 600,000
b.
Journal entries recorded by Olman Company: (1) (2) (3) Inventory Cash (Accounts Payable) Cash (Accounts Receivable) Sales Cost of Goods Sold Inventory 750,000 810,000 540,000 750,000 810,000 540,000
c.
Eliminating entry: E(1) Sales Cost of Goods Sold Inventory 750,000 708,000 42,000
7-13
E7-8 Inventory Transfer between Parent and Subsidiary a. b. c. Karlow Corporation reported cost of goods sold of $820,000 ($82 x 10,000 desks) and Draw Company reported cost of goods sold of $658,000 ($94 x 7,000 desks). Cost of goods sold for the consolidated entity is $574,000 ($82 x 7,000 desks). Eliminating entry: E(1) Sales Cost of Goods Sold Inventory 940,000 904,000 36,000
d.
Eliminating entry: E(1) Retained Earnings, January 1 Cost of Goods Sold 36,000 36,000
e.
Eliminating entry: E(1) Retained Earnings, January 1 Noncontrolling Interest Cost of Goods Sold 21,600 14,400
36,000
7-14
E7-9 Income Statement Effects of Unrealized Profit a. Sale price to Holiday Bakery per bag ($900,000 / 100,000) Profit per bag [$9.00 - ($9.00 / 1.5)] Cost per bag Bags sold by Holiday Bakery (100,000 - 20,000) Consolidated cost of goods sold E(1) Sales Inventory ($3.00 x 20,000 bags) Cost of Goods Sold 900,000 $ 9.00 (3.00) $ 6.00 x 80,000 $480,000
b.
60,000 840,000
Required Adjustment to Cost of Goods Sold: Cost of goods sold Farmco ($900,000 / 1.5) Cost of goods sold Holiday ($9.00 x 80,000 units) Consolidated cost of goods sold ($6.00 x 80,000 units) Required adjustment c. Operating income of Holiday Bakery Net income of Farmco Products Less: Unrealized inventory profits Consolidated net income Less: Income assigned to noncontrolling interest ($150,000 - $60,000 unrealized profit) x .40 Income assigned to controlling interest Alternate computation: Operating income of Holiday Bakery Net income of Farmco Products Unrealized profits ($3.00 x 20,000 units) Realized net income Ownership held by Holiday Bakery Income assigned to controlling interest $150,000 (60,000) $ 90,000 x .60 $400,000 $ 600,000 720,000 $1,320,000 (480,000) $ 840,000 $400,000 150,000 $550,000 (60,000) $490,000 (36,000) $454,000
54,000 $454,000
7-15
E7-10 Prior-Period Unrealized Inventory Profit a. Cost per bag of flour ($9.00 / 1.5) Bags sold Cost of goods sold from inventory held, January 1, 20X9 Assuming the basic equity method is used by Holiday Bakery in accounting for its investment in Farmco Products, the following eliminating entry is needed: E(1) Retained Earnings, January 1 Noncontrolling Interest Cost of Goods Sold $60,000 = 20,000 bags x $3.00 36,000 24,000 $ 6.00 x 20,000 $120,000
b.
60,000
c.
Operating income of Holiday Bakery Net income of Farmco Products Add: Inventory profits realized in 20X9 Consolidated net income Less: Income assigned to noncontrolling shareholders ($250,000 + $60,000) x .40 Income assigned to controlling interest Alternate computation: Operating income of Holiday Bakery Net income of Farmco Products Inventory profits realized in 20X9 Realized net income Ownership held by Holiday Bakery Income assigned to controlling interest $250,000 60,000 $310,000 x .60
$300,000 250,000 $550,000 60,000 $610,000 (124,000) $486,000
$300,000
186,000 $486,000
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E7-11 Computation of Consolidated Income Statement Data a. Reported sales of Prem Company Reported sales of Cooper Company Intercompany sales by Prem Company in 20X5 Intercompany sales by Cooper Company in 20X5 Sales reported on consolidated income statement b. Cost of goods sold reported by Prem Company Cost of goods sold reported by Cooper Company Adjustment due to intercompany sales Consolidated cost of goods sold Adjustment to cost of goods sold: CGS charged by Prem on sale to Cooper CGS charged by Cooper ($30,000 - $6,000) Total charged to CGS CGS for consolidated entity $20,000 x ($24,000 / $30,000) Required adjustment to CGS CGS charged by Cooper on sale to Prem CGS charged by Prem ($80,000 - $20,000) Total charged to CGS CGS for consolidated entity $50,000 x ($60,000 / $80,000) Required adjustment to CGS Total adjustment required c. Reported net income of Cooper Company Unrealized profit on sale to Prem Company $30,000 x ($20,000 / $80,000) Realized net income Noncontrolling interest's share Income assigned to noncontrolling interest Reported net income of Pem Company Less: Income from subsidiary Net income of Cooper Company Operating income Less: Unrealized inventory profits of Prem Company [$10,000 x ($6,000 / $30,000)] Unrealized inventory profits of Copper Company [$30,000 x ($20,000 / $80,000)] Income assigned to noncontrolling interest Income assigned to controlling interest $107,000 (27,000) $ 20,000 24,000 $ 44,000 (16,000) $ 50,000 60,000 $110,000 (37,500) 72,500 $100,500 $ 45,000 (7,500) $ 37,500 x .40 $ 15,000 $ 80,000 45,000 $125,000 $ 28,000 $ 30,000 80,000 $400,000 200,000 $600,000 (110,000) $490,000 $250,000 120,000 $370,000 (100,500) $269,500
d.
$ 2,000 7,500 15,000 (24,500) $ 98,500
7-17
E7-12 Sale of Inventory at a Loss a. Entries recorded by Trent Company Inventory Cash Purchase inventory. Cash Sales Sale of inventory to Gord Corporation. Cost of Goods Sold Inventory Record cost of goods sold. Entries recorded by Gord Corporation Inventory Cash Purchase of inventory from Trent. Cash Sales Sale of inventory to nonaffiliates. Cost of Goods Sold Inventory Record cost of goods sold: $180,000 = $300,000 x .60 b. c. Consolidated cost of goods sold for 20X8 should be reported as $240,000 ($400,000 x .60). Operating income reported by Gord Net income reported by Trent Unrealized loss on intercorporate sale ($400,000 - $300,000) x .40 Consolidated net income Income to assigned to noncontrolling interest ($120,000 x .25) Income assigned to controlling interest $ 80,000 40,000 $230,000 120,000 $350,000 (30,000) $320,000 300,000 300,000 400,000 400,000
300,000
300,000
400,000
400,000
360,000
360,000
180,000
180,000
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E7-12 (continued) d. Eliminating entry, December 31, 20X8: E(1) Sales Inventory Cost of Goods Sold Computation of cost of goods sold to be eliminated Cost of goods sold recorded by Trent Cost of goods sold recorded by Gord Total recorded Consolidated cost of goods sold Required elimination $400,000 180,000 $580,000 (240,000) $340,000 300,000 40,000
340,000
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E7-13 Intercompany Sales a. Consolidated net income for 20X4: Operating income of Hollow Corporation Net income of Surg Corporation Less: Unrealized profit Surg Corporation Consolidated net income b. Inventory balance, December 31, 20X5: Inventory reported by Hollow Corporation Unrealized profit on books of Surg Corporation ($135,000 - $90,000) x ($30,000/$135,000) Inventory reported by Surg Corporation Unrealized profit on books of Hollow Corporation ($280,000 - $140,000) x ($110,000/$280,000) Inventory, December 31, 20X5 c. Consolidated cost of goods sold for 20X5: CGS on sale of inventory on hand January 1, 20X5 $45,000 x ($120,000 / $180,000) CGS on items purchased from Surg in 20X5 ($135,000 - $30,000) x ($90,000 / $135,000) CGS on items purchased from Hollow in 20X5 ($280,000 - $110,000) x ($140,000 / $280,000) Total cost of goods sold d. Income assigned to controlling interest: Operating income of Hollow Corporation Net income of Surg Corporation Add: Inventory profit of prior year realized in 20X5 Less: Unrealized inventory profit Surg Corporation Unrealized inventory profit Hollow Corporation Income to noncontrolling interest ($85,000 + $15,000 - $10,000) x .30 Income assigned to controlling interest $220,000 85,000 $305,000 15,000 (10,000) (55,000) (27,000) $228,000 $ 30,000 70,000 85,000 $185,000 $ 30,000 (10,000) $110,000 (55,000) 55,000 $75,000 $20,000 $160,000 90,000 $250,000 (15,000) $235,000
7-20
E7-14 Consolidated Balance Sheet Workpaper a. Eliminating entries: E(1) Common Stock Hingle Company Retained Earnings Investment in Hingle Company Stock Noncontrolling Interest Eliminate investment balance. Retained Earnings Noncontrolling Interest Inventory Eliminate unrealized inventory profit of Hingle Company. Retained Earnings Inventory Eliminate unrealized inventory profit of Doorst Corporation. 150,000 250,000
280,000 120,000
E(2)
28,000 12,000
40,000
E(3)
10,000
10,000
b.
Doorst Corporation and Hingle Company Consolidated Balance Sheet Workpaper December 31, 20X8 Item Doorst Corp. 98,000 150,000 310,000 280,000 838,000 70,000 200,000 568,000 Hingle Co. 40,000 100,000 280,000 420,000 20,000 150,000 250,000 (1)150,000 (1)250,000 (2) 28,000 (3) 10,000 (2) 12,000 450,000 (1)280,000 Eliminations Debit Credit (2) 40,000 (3) 10,000 Consolidated 138,000 200,000 590,000 928,000 90,000 200,000 530,000 108,000 928,000
Cash and Receivables Inventory Buildings and Equipment (net) Investment in Hingle Company Stock Debits Accounts Payable Common Stock Retained Earnings Noncontrolling Interest Credits
838,000
420,000
(1)120,000 450,000
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E7-15* Multiple Transfers between Affiliates a. Entries recorded by Klon Corporation Cash Sales Sale of inventory to Brant Company. Cost of Goods Sold Inventory Record cost of goods sold. Entries recorded by Brant Company Inventory Cash Purchase of inventory from Klon. Cash Sales Sale of inventory to Torkel Company. Cost of Goods Sold Inventory Record cost of goods sold. Entries recorded by Torkel Company Inventory Cash Purchase of inventory from Brant. Cash Sales Sale of inventory to nonaffiliates. Cost of Goods Sold Inventory Record cost of goods sold. b. Cost of goods sold for 20X8 should be reported as $60,000 [$90,000 x ($100,000 / $150,000)]. Inventory at December 31, 20X8, should be reported at $40,000 [$60,000 x ($100,000 / $150,000)]. 150,000 150,000 150,000 150,000 150,000 150,000
100,000
100,000
150,000
150,000
150,000
150,000
120,000
120,000
90,000
90,000
c.
7-22
E7-15* (continued) d. Eliminating entry for inventory: E(1) Sales Cost of Goods Sold Inventory Computation of cost of goods sold to be eliminated Cost of goods sold recorded by Klon Cost of goods sold recorded by Brant Cost of goods sold recorded by Torkel Total recorded Consolidated cost of goods sold Required elimination Computation of reduction to carrying value of inventory Inventory reported by Torkel Inventory balance to be reported Required elimination $60,000 (40,000) $20,000 $100,000 150,000 90,000 $340,000 (60,000) $280,000 300,000 280,000 20,000
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E7-16 Inventory Sales a. Journal entries recorded by Spice Company: (1) Inventory Cash (Accounts Payable) Record purchases from nonaffiliate. Cash (Accounts Receivable) Sales Record sale to Herb Corporation. Cost of Goods Sold Inventory Record cost of goods sold to Herb Corporation. 150,000 150,000
(2)
60,000
60,000
(3)
40,000
40,000
Journal entries recorded by Herb Corporation: (1) Inventory Cash (Accounts Payable) Record purchases from Spice Company. Cash (Accounts Receivable) Sales Record sale of items to nonaffiliates. Cost of Goods Sold Inventory Record cost of goods sold. 60,000 60,000
(2)
90,000
90,000
(3)
45,000
45,000
b.
Eliminating entry: E(1) Sales Cost of Goods Sold Inventory Eliminate intercompany sale of inventory. 60,000 55,000 5,000
7-24
E7-17 Prior-Period Inventory Profits a. Eliminating entries: E(1) Retained Earnings, January 1 Noncontrolling Interest Cost of goods sold Eliminate beginning inventory profit: $10,000 = ($180,000 - $120,000) x ($30,000 / $180,000) Sales Cost of Goods Sold Inventory Eliminate intercompany sale of inventory. 7,500 2,500
10,000
E(2)
240,000
190,000 50,000
b.
Reported net income of Level Brothers Unrealized profit, December 31, 20X8 Unrealized profit, December 31, 20X9 Realized net income Noncontrolling interest's share of ownership Income assigned to noncontrolling interest
20X8 $350,000 (10,000) $340,000 x .25 $ 85,000
20X9 $420,000 10,000 (50,000) $380,000 x .25 $ 95,000
7-25
SOLUTIONS TO PROBLEMS P7-18 Consolidated Income Statement Data a. b. $180,000 = $550,000 + $450,000 - $820,000 January 1, 20X2: $25,000 = $75,000 - $50,000 December 31, 20X2: $15,000 = $180,000 + $210,000 - $375,000 E(1) Retained Earnings, January 1 Noncontrolling Interest Cost of Goods Sold Eliminate beginning inventory profit. Sales Cost of Goods Sold Inventory Eliminate intercompany sale of inventory. 15,000 10,000
c.
25,000
E(2)
180,000
165,000 15,000
d.
Reported net income of Bitner Company Prior-period profit realized in 20X2 Unrealized profit on 20X2 sales Realized income Proportion held by noncontrolling interest Income assigned to noncontrolling interest
$ 90,000 25,000 (15,000) $100,000 x .40 $ 40,000
P7-19 Unrealized Profit on Upstream Sales 20X2 Operating income reported by Pacific Net income reported by Carroll Inventory profit, December 31, 20X2 $70,000 - ($70,000 / 1.25) Inventory profit, December 31, 20X3 $105,000 - ($105,000 / 1.25) Inventory profit, December 31, 20X4 $120,000 - ($120,000 / 1.25) Consolidated net income Income to noncontrolling interest: ($100,000 - $14,000) x .40 ($90,000 + $14,000 - $21,000) x .40 ($160,000 + $21,000 - $24,000) x .40 Income to controlling interest $150,000 100,000 $250,000 (14,000) 20X3 $240,000 90,000 $330,000 14,000 (21,000) $236,000 (34,400) $201,600 $323,000 (33,200) $289,800 21,000 (24,000) $457,000 20X4 $300,000 160,000 $460,000
(62,800) $394,200
7-26
P7-20 Net Income of Consolidated Entity Operating income of Master for 20X5 Net income of Crown for 20X5 Add: Prior year profits realized by Master Prior year profits realized by Crown Less: Unrealized profits for 20X5 by Master Unrealized profits for 20X5 by Crown Amortization of differential ($45,000 / 15 years) Consolidated net income, 20X5 Less: Income to noncontrolling interest ($65,000 + $40,000 - $55,000 - $3,000) x .30 Income to controlling interest $118,000 65,000 $183,000 25,000 40,000 (14,000) (55,000) (3,000) $176,000 (14,100) $161,900
P7-21 Correction of Eliminating Entries a. Proportion of intercompany inventory purchases resold during 20X5: Unrealized profit at year end Intercompany transfer price Cost of inventory sold ($140,000 / 1.40) Total Profit Proportion of intercompany sale held by Bolger at year end Proportion of intercompany purchases resold by Bolger during 20X5 (1.00 - .30) b. E(1) Eliminating entries, December 31, 20X5: Accounts Payable Accounts Receivable Eliminate intercompany receivable/payable. Sales Inventory Cost of Goods Sold Eliminate intercompany sale of inventory. 80,000 80,000 $140,000 (100,000) $ 12,000 40,000 .30 .70
E(2)
140,000
12,000 128,000
7-27
P7-22 Incomplete Data a. Increase in fair value of buildings and equipment: Consolidated total Balance reported by Lever Balance reported by Tropic Increase in value b. Accumulated depreciation for consolidated entity: Accumulated depreciation reported by Lever Accumulated depreciation reported by Tropic Cumulative write-off of differential ($5,000 x 6 years) Accumulated depreciation for consolidated entity c. Amount paid by Lever to acquire ownership in Tropic: Common stock outstanding Retained earnings at acquisition Total book value at acquisition Increase in value of buildings and equipment Fair value of net assets acquired Proportion of ownership acquired Amount paid by Lever d. Investment in Tropic Company stock reported at December 31, 20X6: Tropic's common stock outstanding December 31, 20X6 Tropic's retained earnings reported December 31, 20X6 Total book value Proportion of ownership held by Lever Lever's share of net book value Unamortized differential ($5,000 x 2 years) x .75 Investment in Tropic Company stock e. Intercorporate sales of inventory in 20X6: Sales reported by Lever Sales reported by Tropic Total sales Sales reported in consolidated income statement Intercompany sales during 20X6 $420,000 260,000 $680,000 (650,000) $ 30,000 $ 60,000 112,000 $172,000 x .75 $129,000 7,500 $136,500 $ 60,000 30,000 $ 90,000 40,000 $130,000 x .75 $ 97,500 $180,000 110,000 30,000 $320,000 $ 680,000 (400,000) (240,000) $ 40,000
7-28
P7-22 (continued) f. Unrealized inventory profit, December 31, 20X6: Inventory reported by Lever Inventory reported by Tropic Total inventory Inventory reported in consolidated balance sheet Unrealized inventory profit, December 31, 20X6 g. Eliminating entry to remove the effects of intercompany inventory sales during 20X6: E(1) Sales Cost of Goods Sold Inventory 30,000 26,000 4,000 $125,000 90,000 $215,000 (211,000) $ 4,000
h.
Unrealized inventory profit at January 1, 20X6: Cost of goods sold reported by Lever Cost of goods sold reported by Tropic Reduction of cost of goods sold for intercompany sales during 20X6 Adjusted cost of goods sold Cost of goods sold reported in consolidated income statement Additional adjustment to cost of goods sold due to unrealized profit in beginning inventory $310,000 170,000 (26,000) $454,000 (445,000) $ 9,000
i.
Accounts receivable reported by Lever at December 31, 20X6: Accounts receivable reported for consolidated entity Accounts receivable reported by Tropic Difference Adjustment for intercompany receivable/payable: Accounts payable reported by Lever Accounts payable reported by Tropic Total reported accounts payable Accounts payable reported for consolidated entity Adjustment for intercompany receivable/payable Accounts receivable reported by Lever $145,000 (55,000) $ 90,000 $ 86,000 20,000 $106,000 (89,000) 17,000 $107,000
7-29
P7-23 Eliminations for Upstream Sales a. Eliminating entries, December 31, 20X8: E(1) Income from Subsidiary Investment in Superior Filter Stock Eliminate income from subsidiary. Income to Noncontrolling Interest Noncontrolling Interest Assign income to noncontrolling interest. Common Stock Superior Filter Company Retained Earnings, January 1 Investment in Superior Filter Stock Noncontrolling Interest Eliminate beginning investment balance. Retained Earnings, January 1 Noncontrolling Interest Cost of Goods Sold Eliminate beginning inventory profit. 32,000 32,000
E(2)
9,000
9,000
E(3)
90,000 220,000
248,000 62,000
E(4)
16,000 4,000
20,000
E(5)
Sales 150,000 Cost of Goods Sold 135,000 Inventory 15,000 Eliminate unrealized inventory profit: $15,000 = $ 45,000 - [$45,000 x ($100,000 / $150,000)] $135,000 = $100,000 CGS recorded by Superior 105,000 CGS recorded by Clean Air $205,000 (70,000) Consolidated amount: $100,000 x ($105,000 / $150,000) $135,000 Required elimination
7-30
P7-23 (continued) b. Computation of consolidated net income and income assigned to controlling interest: Operating income reported by Clean Air Products ($250,000 - $175,000 - $30,000) Net income of Superior Filter ($200,000 - $140,000 - $20,000) Inventory profit realized from 20X7 Unrealized inventory profit for 20X8 Consolidated net income Income assigned to noncontrolling interest ($40,000 + $20,000 - $15,000) x .20 Income assigned to controlling interest c. Noncontrolling interest, December 31, 20X8: Common stock Retained earnings ($220,000 + $40,000) Less: Unrealized inventory profit Proportion of stock held by noncontrolling interest Noncontrolling interest $ 90,000 260,000 (15,000) $335,000 x .20 $ 67,000 $ 45,000 40,000 $ 85,000 20,000 (15,000) $ 90,000 (9,000) $ 81,000
7-31
P7-24 Multiple Inventory Transfers a. Consolidated net income for 20X8: Operating income of Ajax Corporation Unrealized profit, December 31, 20X8 ($35,000 - $15,000) x ($7,000 / $35,000) Net income of Beta Corporation Profit realized from 20X7 ($30,000 - $24,000) x ($10,000 / $30,000) Unrealized profit, December 31, 20X8 ($72,000 - $63,000) x ($12,000 / $72,000) Net income of Cole Corporation Profit realized from 20X7 ($72,000 - $60,000) x ($18,000 / $72,000) Unrealized profit, December 31, 20X8 ($45,000 - $27,000) x ($15,000 / $45,000) Consolidated net income b. Inventory balance, December 31, 20X8: Balance per Beta Corporation Less: Unrealized profit Balance per Cole Corporation Less: Unrealized profit Balance per Ajax Corporation Less: Unrealized profit Inventory balance per consolidated statement c. Income assigned to noncontrolling interest in 20X8: Realized income of Beta Corporation Proportion of stock held by noncontrolling interest Realized income of Cole Corporation Proportion of stock held by noncontrolling interest Income to noncontrolling interest $38,000 x .30 $11,400 $ 7,000 (4,000) $12,000 (1,500) $15,000 (6,000) $ 3,000 10,500 9,000 $22,500 $80,000 (4,000) $37,500 2,000 (1,500) $20,000 3,000 (6,000) 17,000 $131,000 38,000 $ 76,000
$17,000 x .10 1,700 $13,100
7-32
P7-25 a.
Consolidation with Inventory Transfers and Other Comprehensive Income
Balance in investment account at December 31, 20X5: Proportionate share of Tall's net assets, January 1 ($1,400,000 x .90) Proportionate share of 20X5 net income ($90,000 x .90) Proportionate share of other comprehensive income for 20X5 ($20,000 x .90) Proportionate share of dividends received ($60,000 x .90) Balance in investment account December 31, 20X5 $1,260,000 81,000 18,000 (54,000) $1,305,000
b.
Investment income for 20X5: Net income reported by Tall Proportion of ownership held by Priority Investment income for 20X5 $90,000 x .90 $81,000
c.
Income to noncontrolling interests for 20X5: Net income reported by Tall 20X4 inventory profits realized in 20X5 ($15,000 x .40) 20X5 unrealized inventory profits $30,000 - [$30,000 x ($48,000 / $90,000)] Realized net income Proportion of ownership held by noncontrolling interest Income to noncontrolling interest $90,000 6,000 (14,000) $82,000 x .10 $ 8,200
d.
Balance assigned to noncontrolling interest in consolidated balance sheet: Net assets reported by Tall, January 1 Net income for 20X5 Dividends paid in 20X5 Net assets reported, December 31, 20X5 Unrealized inventory profits at December 31, 20X5 Other comprehensive income in 20X5 Adjusted net assets, December 31, 20X5 Proportion of ownership held by noncontrolling interest Net assets assigned to noncontrolling interest $1,400,000 90,000 (60,000) $1,430,000 (14,000) 20,000 $1,436,000 x .10 $ 143,600
7-33
P7-25 (continued) e. Inventory reported in consolidated balance sheet: Inventory held by Priority Less: Unrealized profit Inventory held by Tall Less: Unrealized profit $6,000 - [$6,000 x ($24,000 / $36,000)] Inventory f. Consolidated net income for 20X5: Operating income of Priority Net income of Tall Total unadjusted income 20X4 inventory profits realized in 20X5 ($6,000 + $8,000) Unrealized inventory profits on 20X5 sales ($14,000 + $2,000) Consolidated net income g. Eliminating entries, December 31, 20X5 E(1) Income from Investment in Subsidiary Dividends Declared Investment in Tall Common Stock Eliminate income from subsidiary. Income to Noncontrolling Interest Dividends Declared Noncontrolling Interest Assign income to noncontrolling interest. 81,000 54,000 27,000 $240,000 90,000 $330,000 14,000 (16,000) $328,000 $120,000 (14,000) $100,000 (2,000) 98,000 $204,000 $106,000
E(2)
8,200
6,000 2,200
7-34
P7-25 (continued) E(3) Other Comprehensive Income from Subsidiary (OCI) Investment in Tall Corporation Stock Eliminate other comprehensive income from subsidiary. Other Comprehensive Income to Noncontrolling Interest Noncontrolling Interest Assign other comprehensive income to noncontrolling interest. Common Stock Tall Corporation Additional Paid-In Capital Tall Corporation Retained Earnings, January 1 Accumulated Other Comprehensive Income Investment in Tall Common Stock Noncontrolling Interest Eliminate beginning investment balance. Retained Earnings, January 1 Noncontrolling Interest Cost of Goods Sold Eliminate beginning inventory profit of Tall Company. Retained Earnings, January 1 Cost of Goods Sold Eliminate beginning inventory profit of Priority Corporation. Sales Inventory Cost of Goods Sold Eliminate intercompany sale of inventory by Priority Corporation. Sales Inventory Cost of Goods Sold Eliminate intercompany sale of inventory by Tall Company. 18,000
18,000
E(4)
2,000
2,000
E(5)
400,000 200,000 790,000 10,000
1,260,000 140,000
E(6)
5,400 600
6,000
E(7)
8,000
8,000
E(8)
36,000
2,000 34,000
E(9)
90,000
14,000 76,000
7-35
P7-26 Multiple Inventory Transfers between Parent and Subsidiary a. Eliminating entries: E(1) Retained earnings, January 1 Cost of goods sold Eliminate beginning inventory profit of Proud Company. Retained earnings, January 1 Noncontrolling Interest Cost of goods sold Inventory Eliminate beginning inventory profit of Slinky Company. Sales Inventory Cost of goods sold Eliminate intercompany sale of inventory by Proud Company. Sales Inventory Cost of goods sold Eliminate intercompany sale of inventory by Slinky Company. 20,000 20,000
E(2)
12,600 8,400
15,000 6,000
E(3)
60,000
2,000 58,000
E(4)
240,000
30,000 210,000
b.
Computation of cost of goods sold for consolidated entity: Inventory produced by Proud in 20X5 ($100,000 x .40) Inventory produced by Slinky in 20X5 ($70,000 x .50) Inventory produced by Proud in 20X6 ($40,000 x .90) Inventory produced by Slinky in 20X6 ($200,000 x .25) Cost of goods sold reported in consolidated income statement $ 40,000 35,000 36,000 50,000 $161,000
7-36
P7-27 Consolidation following Inventory Transactions a. Entries recorded by Bell on its investment in Troll: Cash Investment in Troll Corporation Stock Record dividends from Troll: $10,000 x .60 Investment in Troll Corporation Stock Income from Subsidiary Record equity-method income: $30,000 x .60 b. Eliminating entries, December 31, 20X2: E(1) Income from Subsidiary Dividends Declared Investment in Troll Corporation Stock Eliminate income from subsidiary. Income to Noncontrolling Interest Dividends Declared Noncontrolling Interest Assign income to noncontrolling interest: $11,680 = ($30,000 + $3,400 - $4,200) x .40 18,000 6,000 12,000 6,000 6,000
18,000
18,000
E(2)
11,680
4,000 7,680
E(3)
Common Stock Troll Corporation 100,000 Retained Earnings, January 1 50,000 Land 18,000 Investment in Troll Corporation Stock Noncontrolling Interest Eliminate beginning investment balance: $18,000 = ($82,800 + $55,200) - ($100,000 + $20,000) $100,800 = $82,800 + [($50,000 - $20,000) x .60] $67,200 = ($100,000 + $50,000 + $18,000) x .40 Retained Earnings, January 1 Noncontrolling Interest Cost of Goods Sold Eliminate beginning inventory profit of Troll Corporation: $3,400 = ($42,500 - $25,500) x .20 Sales Cost of Goods Sold Inventory Eliminate intercompany upstream sale of inventory by Troll Corporation: $4,200 = ($35,000 - $21,000) x .30 Sales Cost of Goods Sold Inventory Eliminate intercompany downstream sale of inventory by Bell Company: $6,500 = $13,000 x ($14,000 / $28,000) 2,040 1,360
100,800 67,200
E(4)
3,400
E(5)
35,000
30,800 4,200
E(6)
28,000
21,500 6,500
7-37
P7-27 (continued) c. Bell Company and Troll Corporation Consolidation Workpaper December 31, 20X2 Item Bell Co. 200,000 18,000 218,000 99,800 25,000 6,000 (130,800) Troll Corp. 120,000 120,000 61,000 15,000 14,000 (90,000) (2) 11,680 92,680 (3) 50,000 (4) 2,040 92,680 (1) (2) 144,720 (5) (6) Eliminations Debit Credit (5) 35,000 (6) 28,000 (1) 18,000 (4) 3,400 (5) 30,800 (6) 21,500 Consolidated 257,000 257,000 105,100 40,000 20,000 (165,100) 91,900 (11,680) 80,220 227,960 80,220 308,180 (40,000) 268,180 120,600 104,300 88,000 870,000
Sales
Income from Subsidiary Credits Cost of Goods Sold Depreciation Expense Interest Expense Debits Consolidated Net Income Income to Noncontrolling Interest Income, carry forward Ret. Earnings, Jan. 1 Income, from above Dividends Declared Ret. Earnings, Dec. 31, carry forward Cash and Accounts Receivable Inventory Land Buildings and Equipment Investment in Troll Corporation Stock Debits Accum. Depreciation Accounts Payable Bonds Payable Bond Premium Common Stock Bell Company Troll Corporation Retained Earnings, from above Noncontrolling Interest Credits
87,200 230,000 87,200 317,200 (40,000) 277,200 69,400 60,000 40,000 520,000 112,800 802,200 175,000 68,800 80,000 1,200 200,000 277,200
30,000 50,000 30,000 80,000 (10,000) 70,000 51,200 55,000 30,000 350,000
55,700 55,700 6,000 4,000 65,700 4,200 6,500
(3) 18,000
486,200 75,000 41,200 200,000
(1) 12,000 (3)100,800
1,182,900 250,000 110,000 280,000 1,200 200,000
100,000 70,000
(3)100,000 144,720 (4) 1,360 264,080 65,700 (2) 7,680 (3) 67 200 264,080
268,180 73,520 1,182,900
802,200
486,200
7-38
P7-28 Consolidation Workpaper a. Eliminating entries: E(1) Income from Subsidiary Dividends Declared Investment in West Company Stock Eliminate income from subsidiary. Income to Noncontrolling Interest Dividends Declared Noncontrolling Interest Assign income to noncontrolling interest: $7,950 = ($20,000 + $30,000 - $25,000 + $1,500) x .30 Common Stock West Company Retained Earnings, January 1 Differential Investment in West Company Stock Noncontrolling Interest Eliminate beginning investment balance: $36,000 = $291,200 + $124,800 - $380,000 $305,200 = $315,700 - $10,500 $130,800 = ($250,000 + $150,000 + $36,000) x .30 Land, Buildings and Equipment (net) Goodwill Differential Assign beginning differential. Retained Earnings, January 1 Noncontrolling Interest Cost of Goods and Services Eliminate beginning inventory profit of West Company. 14,000 3,500 10,500
E(2)
7,950
1,500 6,450
E(3)
150,000 250,000 36,000
305,200 130,800
E(4)
14,000 22,000
36,000
E(5)
21,000 9,000
30,000
7-39
P7-28 (continued) E(6) Retained Earnings, January 1 Cost of Goods and Services Eliminate beginning inventory profit of Crow Corporation. Sales Cost of Goods and Services Inventory Eliminate intercompany upstream sale of inventory by West Company: $25,000 = $62,000 - $37,000 15,000 15,000
E(7)
62,000
37,000 25,000
E(8)
Sales 90,000 Cost of Goods and Services 82,000 Inventory 8,000 Eliminate intercompany downstream sale of inventory by Crow Corporation: $8,000 = ($90,000 - $54,000) x ($20,000 / $90,000) $82,000 = $ 54,000 CGS recorded by Crow Corporation 70,000 CGS recorded by West Company $ 124,000 (42,000) Consolidated amount [$54,000 x ($70,000 / $90,000)] $ 82,000 Required elimination Retained Earnings, January 1 Noncontrolling Interest Depreciation Expense Land, Buildings and Equipment (net) Eliminate unrealized gain on equipment: $7,350 = [$15,000 - ($1,500 x 3)] x .70 $3,150 = [$15,000 - ($1,500 x 3)] x .30 $1,500 = $9,500 -$8,000 $9,000 = [$95,000 - ($9,500 x 4)] [$120,000 - ($8,000 x 9)] 7,350 3,150
E(9)
1,500 9,000
7-40
P7-28 (continued) b. Crow Corporation and West Company Consolidation Workpaper December 31, 20X9 Crow Corp. 300,000 14,000 314,000 200,000 West Co. 200,000 200,000 150,000 Eliminations Debit Credit (7) 62,000 (8) 90,000 (1) 14,000 (5) (6) (7) (8) (9) 30,000 15,000 37,000 82,000 1,500 Consolidated 348,000 348,000
Item Sales and Service Revenue Income from Subsidiary Credits Cost of Goods and Services
Depreciation Expense Debits Consolidated Net Income Income to Noncontrolling Interest Income, carry forward Retained Earnings, Jan. 1
40,000 30,000 (240,000) (180,000) (2) 7,950 173,950
186,000 68,500 (254,500) 93,500 (7,950) 85,550
74,000 568,000
20,000 250,000
165,500
Income, from above Dividends Declared Retained Earnings, Dec. 31, carry forward Cash and Receivables Inventory Land, Buildings & Equipment (net) Investment in West Company Stock Differential Goodwill Debits Accounts Payable Common Stock Ret. Earnings, from above Noncontrolling Interest Credits
74,000 642,000 (35,000) 607,000 81,300 200,000 270,000 315,700
20,000 270,000 (5,000) 265,000 85,000 110,000 250,000
(3)250,000 (5) 21,000 (6) 15,000 (9) 7,350 173,950 (1) (2) 467,300
165,500 3,500 1,500 170,500 (7) 25,000 (8) 8,000
524,650 85,550 610,200 (35,000) 575,200 166,300 277,000 525,000
(4) 14,000
(9)
9,000
867,000 60,000 200,000 607,000 867,000
445,000 30,000 150,000 265,000 445,000
(3) 36,000 (4) 22,000 (3)150,000 467,300 (5) 9,000 (9) 3,150 701,450
(1) 10,500 (3) 305,200 (4) 36,000
170,500 (2) 6,450 (3)130,800 701,450
22,000 990,300 90,000 200,000 575,200 125,100 990,300
7-41
P7-28 (continued) c. Retained earnings reconciliation, December 31, 20X9: Retained earnings, Crow Corporation Unrealized profits on Crow Corporation's books ($90,000 - $54,000) x ($20,000 / $90,000) Unrealized profits on West Company's books ($62,000 - $37,000) x .70 Unrealized profit on equipment transfer [($15,000 - ($1,500 x 4)] x .70 Consolidated retained earnings $607,000 (8,000) (17,500) (6,300) $575,200
P7-29 Computation of Consolidated Totals a. Consolidated sales for 20X8: Sales reported Intercorporate sales Sales to nonaffiliates b. Consolidated cost of goods sold: Total sales reported Ratio of cost to sales price Cost of goods sold Amount to be eliminated (see entry) Cost of goods sold adjusted Eliminating entries: E(1) Sales Inventory Cost of Goods Sold Elimination of sales by Bunker to Harrison: $12,000 = $42,000 - ($42,000 / 1.40) $128,000 = $140,000 - $12,000 Sales Inventory Cost of Goods Sold Elimination of sales by Harrison to Bunker: $8,000 = $48,000 - ($48,000 / 1.20) $232,000 = $240,000 - $8,000 140,000 12,000 128,000 $660,000 1.4 $471,429 (128,000) $343,429 $510,000 1.2 $425,000 (232,000) $193,000 $536,429 Bunker Corp. $660,000 (140,000) $520,000 Harrison Co. $510,000 (240,000) $270,000 Consolidated $790,000
E(2)
240,000
8,000 232,000
7-42
P7-29 (continued) c. Operating income of Bunker Corporation (excluding income from Harrison Company) Net income of Harrison Company Less: Unrealized inventory profits of Bunker Unrealized inventory profits of Harrison Consolidated net income Less: Income assigned to noncontrolling interest ($20,000 - $8,000) x .20 Income to controlling interest 20X8 d. Inventory balance in consolidated balance sheet: Inventory reported by Bunker Corporation Unrealized profits Inventory reported by Harrison Company Unrealized profits Inventory balance, December 31, 20X8 $48,000 (8,000) $42,000 (12,000) $40,000 30,000 $70,000 $70,000 20,000 $90,000 (12,000) (8,000) $70,000 (2,400) $67,600
7-43
P7-30 Intercompany Transfer of Inventory and Land a. Eliminating entries: E(1) Income from Subsidiary Dividends Declared Investment in Bock Company Stock Eliminate income from subsidiary: $11,200 = ($25,000 - $2,000 - $7,000) x .70 $10,500 = $15,000 x .70 Income to Noncontrolling Interest Dividends Declared Noncontrolling Interest Assign income to noncontrolling interest: $5,100 = ($25,000 - $2,000 - $7,000 + $9,000 - $8,000) x .30 $4,500 = $15,000 x .30 Common stock Bock Company Retained Earnings, January 1 Differential Investment in Bock Company Stock Noncontrolling Interest Eliminate beginning investment balance: $123,200 = ($70,000 +$60,000 + $46,000) x .7 $52,800 = ($70,000 + $60,000 + $46,000) x .3 Computation of unamortized differential Fair value of compensation given by Pine Fair value of noncontrolling interest Less: Book value of Spencer's net assets ($70,000 + $30,000) Differential at acquisition Amortization of amount assigned to: Buildings and equipment [($20,000 / 10 years] x 1 year Patent ($35,000 / 5 years) x 1 year Unamortized differential, January 1, 20X7 E(4) Buildings and Equipment Patent Accumulated Depreciation Differential Assign beginning differential: $28,000 = $35,000 - $7,000 $2,000 = $20,000 / 10 years $108,500 46,500 (100,000) $ 55,000 (2,000) (7,000) $46,000 20,000 28,000 11,200 10,500 700
E(2)
5,100
4,500 600
E(3)
70,000 60,000 46,000
123,200 52,800
2,000 46,000
7-44
P7-30 (continued) E(5) Depreciation Expense Amortization Expense Accumulated Depreciation Patent Amortize differential: $2,000 = $20,000 / 10 years $7,000 = $35,000 / 5 years Retained Earnings, January 1 Noncontrolling Interest Cost of Goods Sold Inventory Eliminate beginning inventory profit of Bock Company: $11,200 = ($48,000 - $32,000) x .70 $4,800 = ($48,000 - $32,000) x .30 $9,000 = $27,000 - ($27,000 x 2/3) $7,000 = $21,000 - ($21,000 x 2/3) Sales Cost of Goods Sold Inventory Eliminate intercompany sale of inventory by Bock Company: $8,000 = $24,000 - ($24,000 x 2/3) Sales Cost of Goods Sold Inventory Eliminate intercompany sale of inventory by Pine Corporation: $3,800 = $7,600 - ($7,600 x 1/2) Retained Earnings, January 1 Noncontrolling Interest Land Eliminate unrealized profit on land: $15,000 = $37,000 - $22,000 2,000 7,000
2,000 7,000
E(6)
11,200 4,800
9,000 7,000
E(7)
90,000
82,000 8,000
E(8)
30,000
26,200 3,800
E(9)
10,500 4,500
15,000
7-45
P7-30 (continued) b. Pine Corporation and Bock Company Consolidation Workpaper December 31, 20X3 Pine Corp. 260,000 13,600 11,200 284,800 186,000 20,000 16,000 Bock Co. 125,000 Eliminations Debit Credit (7) 90,000 (8) 30,000 (1) 11,200 (6) 9,000 (7) 82,000 (8) 26,200 Consolidated 265,000 13,600 278,600 148,600 37,000 21,200 7,000 (213,800) 64,800 (5,100) 59,700
Item Sales Other Income Income from Subsidiary Credits Cost of Goods Sold Depreciation Expense Interest Expense Amortization Expense Debits Consolidated Net Income Income to Noncontrolling Interest Income, carry forward Retained Earnings, Jan. 1 Income, from above Dividends Declared Retained Earnings, Dec. 31, carry forward Cash and Accounts Receivable Inventory Land Buildings and Equipment Investment in Bock Company Stock Differential Patent Debits
125,000 79,800 15,000 5,200
(5) 2,000 (5) 7,000
(222,000) (100,000)
62,800 139,100 62,800 201,900 (30,000) 171,900 15,400 165,000 80,000 340,000 123,900
25,000 60,000 25,000 85,000 (15,000) 70,000 21,600 35,000 40,000 260,000
(2) 5,100 145,300 (3) 60,000 (6) 11,200 (9) 10,500 145,300
117,200
117,200 (1) 10,500 (2) 4,500
117,400 59,700 177,100 (30,000) 147,100 37,000 181,200 105,000 620,000
227,000
132,200
(4) 20,000
(6) 7,000 (7) 8,000 (8) 3,800 (9) 15,000 (1) 700 (3)123,200 (4) 46,000 (5) 7,000
724,300
356,600
(3) 46,000 (4) 28,000
21,000 964,200
7-46
P7-30 (continued) Item Accum. Depreciation Accounts Payable Bonds Payable Bond Premium Common Stock Pine Corporation Bock Company Retained Earnings, from above Noncontrolling Interest Credits Pine Corp. 140,000 92,400 200,000 120,000 171,900 Bock Co. 80,000 35,000 100,000 1,600 70,000 70,000 (3) 70,000 227,000 (6) 4,800 (9) 4,500 400,300 132,200 (2) 600 (3) 52,800 400,300 Eliminations Debit Credit (4) 2,000 (5) 2,000 Consolidated 224,000 127,400 300,000 1,600 120,000 147,100 44,100 964,200
724,300
356,600
7-47
P7-30 (continued) Note: Financial statements are not required. Pine Corporation and Subsidiary Consolidated Balance Sheet December 31, 20X3 Cash and Accounts Receivable Inventory Land Buildings and Equipment Less: Accumulated Depreciation Patent Total Assets Accounts Payable Bonds Payable Bond Premium Stockholders Equity: Controlling Interest: Common Stock Retained Earnings Total Controlling Interest Noncontrolling Interest Total Stockholders Equity Total Liabilities and Stockholders' Equity Pine Corporation and Subsidiary Consolidated Income Statement Year Ended December 31, 20X3 Sales Other Income Total Income Cost of Goods Sold Depreciation Expense Interest Expense Amortization Expense Total Expenses Consolidated Net Income Income to Noncontrolling Interest Income to Controlling Interest $265,000 13,600 $278,600 $ 37,000 181,200 105,000 396,000 21,000 $740,200 $127,400 301,600
$620,000 (224,000)
$300,000 1,600 $120,000 147,100 $267,100 44,100
311,200 $740,200
$148,600 37,000 21,200 7,000
(213,800) $ 64,800 (5,100) $ 59,700
7-48
P7-30 (continued)
Pine Corporation and Subsidiary Consolidated Retained Earnings Statement Year Ended December 31, 20X3 Retained Earnings, January 1, 20X3 Income to Controlling Interest, 20X3 Dividends Declared, 20X3 Retained Earnings, December 31, 20X3 $117,400 59,700 $177,100 (30,000) $147,100
P7-31 Consolidation Using Financial Statement Data a. Eliminating entries, December 31, 20X6: E(1) Income from Subsidiary Dividends Declared Investment in Concerto Company Stock Eliminate income from subsidiary. Income to Noncontrolling Interest Dividends Declared Noncontrolling Interest Assign income to noncontrolling interest: $9,600 = ($35,000 + $8,000 - $9,000 - $10,000) x .40 Common Stock Concerto Company Retained Earnings, January 1 Differential Investment in Concerto Company Stock Noncontrolling Interest Eliminate beginning investment balance: $40,000 = $24,000 + $16,000 21,000 12,000 9,000
E(2)
9,600
8,000 1,600
E(3)
50,000 150,000 40,000
144,000 96,000
7-49
P7-31 (continued) E(4) Goodwill Differential Assign differential to goodwill. Goodwill Impairment Loss Goodwill Recognize impairment of goodwill. Retained Earnings, January 1 Noncontrolling Interest Land Eliminate unrealized gain on land. Retained Earnings, January 1 Cost of Goods Sold Eliminate beginning inventory profit of Bower: $14,000 - ($14,000 / 1.40) Retained Earnings, January 1 Noncontrolling Interest Cost of Goods Sold Eliminate beginning inventory profit of Concerto Company: $8,000 = $48,000 - ($48,000 / 1.20) Sales Cost of Goods Sold Inventory Eliminate intercompany sale of inventory by Bower: $2,000 = $7,000 - ($7,000 / 1.40) Sales Cost of Goods Sold Inventory Eliminate intercompany sale of inventory by Concerto Company: $9,000 = $54,000 - ($54,000 / 1.20) 40,000 40,000
E(5)
10,000
10,000
E(6)
6,000 4,000
10,000
E(7)
4,000
4,000
E(8)
4,800 3,200
8,000
E(9)
22,000
20,000 2,000
E(10)
90,000
81,000 9,000
7-50
P7-31 (continued) b. Bower Corporation and Concerto Company Consolidation Workpaper December 31, 20X6 Bower Corp. 400,000 21,000 421,000 280,000 Concerto Co. 200,000 200,000 120,000 Eliminations Debit Credit (9) 22,000 (10) 90,000 (1) 21,000 (7) 4,000 (8) 8,000 (9) 20,000 (10)81,000 (5) 10,000 Consolidated 488,000 488,000
Item Sales Income from Subsidiary Credits Cost of Goods Sold
Depreciation and Amortization Goodwill Impairment Loss Other Expenses Debits Consolidated Net Income Income to Noncontrolling Interest Income, carry forward Retained Earnings, Jan. 1
287,000 40,000 10,000 65,000 (402,000) 86,000
25,000
15,000
35,000 30,000 (340,000) (165,000)
81,000 293,800
35,000 150,000
(2)
9,600 152,600
113,000
(9,600) 76,400
Income, from above Dividends Declared Ret. Earnings, Dec. 31, carry forward
81,000 374,800 (50,000) 324,800
35,000 185,000 (20,000) 165,000
(3)150,000 (6) 6,000 (7) 4,000 (8) 4,800 152,600
113,000 (1) 12,000 (2) 8,000
279,000 76,400 355,400 (50,000) 305,400
317,400
133,000
7-51
P7-31 (continued) Item Cash Accounts Receivable Inventory Land Buildings and Equipment Investment in Concerto Company Stock Differential Goodwill Debits Accumulated Depreciation Accounts Payable Bonds Payable Common Stock Retained Earnings, from above Noncontrolling Interest Credits Bower Corp. 26,800 80,000 120,000 70,000 340,000 153,000 (3) 40,000 (4) 40,000 Concerto Co. 35,000 40,000 90,000 20,000 200,000 Eliminations Debit Credit Consolidated 61,800 120,000 199,000 80,000 540,000
(9) 2,000 (10) 9,000 (6) 10,000 (1) 9,000 (3)144,000 (4) 40,000 (5) 10,000
789,800 165,000 80,000 120,000 100,000 324,800 789,800
385,000 85,000 15,000 70,000 50,000 165,000 385,000
30,000 1,030,800 250,000 95,000 190,000 100,000
(3) 50,000 317,400 (6) 4,000 (8) 3,200 454,600 133,000 (2) 1,600 (3) 96,000 454,600
305,400 90,400 1,030,800
7-52
P7-32 Intercorporate Transfers of Inventory and Equipment a. Consolidated cost of goods sold for 20X9: Amount reported by Foster Company Amount reported by Block Corporation Adjustment for unrealized profit in beginning inventory sold in 20X9 Adjustment for inventory purchased from subsidiary and resold during 20X9: CGS recorded by Foster ($30,000 x .60) CGS recorded by Block Total recorded CGS based on Block's cost ($20,000 x .60) Required adjustment Cost of goods sold b. Consolidated inventory balance: Amount reported by Foster Amount reported by Block Total inventory reported Unrealized profit in ending inventory held by Foster [($30,000 - $20,000) x .40] Consolidated balance c. Income assigned to noncontrolling interest: Net income reported by Block Corporation Adjustment for realization of loss on equipment sold to Foster in 20X7 Adjustment for realization of profit on inventory sold to Foster in 20X8 Adjustment for unrealized profit on inventory sold to Foster in 20X9 Realized net income of Block for 20X9 Proportion of ownership held by noncontrolling interest Income assigned to noncontrolling interest $70,000 (3,000) 15,000 (4,000) $78,000 x .10 $ 7,800 $137,000 130,000 $267,000 (4,000) $263,000 $593,000 270,000 (15,000) $18,000 20,000 $38,000 (12,000)
(26,000) $822,000
7-53
P7-32 (continued) d. Amount assigned to noncontrolling interest in consolidated balance sheet: Block Corporation common stock outstanding Block Corporation retained earnings, January 1, 20X9 Net income for 20X9 Dividends paid in 20X9 Book value, December 31, 20X9 Adjustment for unrealized loss on equipment $24,000 - [($24,000 / 8 years) x 3 years] Adjustment for unrealized profit on inventory sold to Foster Realized book value of Block Corporation Proportion of ownership held by noncontrolling interest Balance assigned to noncontrolling interest e. Consolidated retained earnings at December 31, 20X9: Balance reported by Foster Company, January 1, 20X9 Net income for 20X9 Dividends paid in 20X9 Balance reported by Foster Company, December 31, 20X9 Adjustment for proportionate share of unrealized loss on sale of equipment ($15,000 x .90) Adjustment for proportionate share of unrealized gain on inventory ($4,000 x .90) Consolidated retained earnings, December 31, 20X9 f. Eliminating entries: E(1) Income from Subsidiary Dividends Declared Investment in Block Corporation Stock Eliminate income from subsidiary. Income to Noncontrolling Interest Dividends Declared Noncontrolling Interest Assign income to noncontrolling interest. Common Stock Block Corporation Retained Earnings, January 1 Investment in Block Corporation Stock Noncontrolling Interest Eliminate beginning investment balance. 63,000 18,000 45,000 $248,500 171,000 (40,000) $379,500 13,500 (3,600) $389,400 $ 50,000 165,000 70,000 (20,000) $265,000 15,000 (4,000) $276,000 x .10 $ 27,600
E(2)
7,800
2,000 5,800
E(3)
50,000 165,000
193,500 21,500
7-54
P7-32 (continued) E(4) Buildings and Equipment Depreciation Expense Retained Earnings, January 1 Noncontrolling Interest Accumulated Depreciation Eliminate intercorporate sale of equipment: $42,000 = $90,000 - $48,000 $3,000 = ($90,000 / 10 years) - ($48,000 / 8 years) $16,200 = [$24,000 - ($3,000 x 2 years)] x .90 $1,800 = [$24,000 - ($3,000 x 2 years)] x .10 $27,000 = [($90,000 / 10 years) x 5 years] - [($48,000 / 8 years) x 3 years] Sales Cost of Goods Sold Inventory Eliminate intercompany sale of inventory by Block Corporation. Retained Earnings, January 1 Noncontrolling Interest Cost of Goods Sold Eliminate beginning inventory profit of Block Corporation. 42,000 3,000
16,200 1,800 27,000
E(5)
30,000
26,000 4,000
E(6)
13,500 1,500
15,000
7-55
P7-32 (continued) g. Foster Company and Block Corporation Consolidation Workpaper December 31, 20X9 Foster Co. 815,000 26,000 63,000 904,000 593,000 Block Corp. 415,000 15,000 430,000 270,000 Eliminations Debit Credit (5) 30,000 (1) 63,000 (5) 26,000 (6) 15,000 Consolidated 1,200,000 41,000 1,241,000 822,000 63,000 170,000 (1,055,000) 186,000 (7,800) 178,200 251,200 178,200 429,400 (40,000) 389,400 244,400 170,000 50,000 263,000 140,000 792,000
Item Sales Other Income Income from Subsidiary Credits Cost of Goods Sold Depreciation Expense Other Expenses Debits Consolidated Net Income Income to Noncontrolling Interest Income, carry forward Ret. Earnings, Jan. 1 Income, from above Dividends Declared Ret. Earnings, Dec. 31, carry forward Cash Accounts Receivable Other Receivables Inventory Land Buildings and Equipment Investment in Block Corporation Stock Debits
45,000 15,000 95,000 75,000 (733,000) (360,000)
(4)
3,000
171,000 248,500 171,000 419,500 (40,000) 379,500 187,000 80,000 40,000 137,000 80,000 500,000 238,500 1,262,500
70,000 165,000 70,000 235,000 (20,000) 215,000 57,400 90,000 10,000 130,000 60,000 250,000
(2) 7,800 103,800 (3)165,000 (6) 13,500 103,800
41,000 (4) 16,200 41,000 (1) 18,000 (2) 2,000
282,300
77,200
(5) (4) 42,000
4,000
597,400
(1) 45,000 (3)193,500
1,659,400
7-56
P7-32 (continued) Item Accum. Depreciation Accounts Payable Other Payables Bonds Payable Bond Premium Common Stock Foster Company Block Corporation Additional Paid-In Capital Retained Earnings, from above Noncontrolling Interest Credits Foster Co. 155,000 63,000 95,000 250,000 210,000 110,000 379,500 215,000 282,300 (6) 1,500 1,262,500 597,400 375,800 77,200 (2) 5,800 (3) 21,500 (4) 1,800 375,800 Block Corp. 75,000 35,000 20,000 200,000 2,400 50,000 (3) 50,000 Eliminations Debit Credit (4) 27,000 Consolidated 257,000 98,000 115,000 450,000 2,400 210,000 110,000 389,400
27,600 1,659,400
7-57
P7-33 Consolidated Balance Sheet Workpaper [AICPA Adapted] Pine Corp. and Subsidiary Consolidated Balance Sheet Workpaper December 31, 20X6 Adjustments and Eliminations Debit Credit
Pine Corp. Slim Corp. Cash Assets 105,000 410,000 15,000 120,000 [b]
ConsolIdated 120,000
Accounts and Other Current Receivables
900
[3] [4] [5] [7] [6]
900 5,000 100,000 90,000 3,000
335,000 1,587,000 1,400,000
Merchandise Inventory Plant and Equipment, net Investment in Slim
920,000 1,000,000 1,170,000
670,000 400,000 [a] 90,900
[b] [1] [2]
900 450,000 810,000 500,000 3,942,000
Goodwill Totals Liabilities and Stockholders' Equity Accounts Payable and Other Current Liabilities
3,605,000 1,205,000
[1] 500,000
140,000
305,000
[3] 900 [4] 5,000 [5] 100,000 [7] 90,000 [2] 200,000 [2] 700,000 [6] 3,000
249,100 500,000
Common Stock ($10 par) Retained Earnings
500,000 2,965,000
200,000 700,000
[a] [1] [2]
90,900 50,000 90,000 1,690,700
3,052,900 140,000 3,942,000
Noncontrolling Interest, 10 percent Totals
3,605,000 1,205,000
1,690,700
7-58
P7-33 (continued) Explanations of Workpaper Adjustments and Eliminations [a] To record net income of Slim Corporation accruing to Pine Corporation: Slim Corporation's retained earnings at December 31, 20X6 Slim Corporation's retained earnings at January 1, 20X6 Increase in retained earnings after dividend declaration Add: Dividend declaration Slim Corporation's net income for year ended December 31, 20X6 Pine Corporation's share, 90 percent To record Pine Corporation's share of dividend declared by Slim Corporation: 90 percent of $1,000 To record goodwill: Fair value of compensation given by Pine Fair value of nonconctolling interest at acquisition Slim Corporation's book value at January 1, 20X6: Common stock Retained earnings Total book value Goodwill To eliminate 90 percent of Slim Corporation's book value and record noncontrolling interest: Common stock Retained earnings at December 31, 20X6 Total Pine Corporation's 90 percent share Minority interests 10 percent share Total [3] [4] [5] [6] To eliminate intercompany dividend receivable and payable: 90 percent of $1,000 To eliminate intercompany accrued interest: $100,000 @ 10 percent x year To eliminate intercompany loan: To eliminate intercompany profit in Slim Corporation's December 31 inventory: Sales from Pine Corporation to Slim Corporation 5 percent remaining in Slim Corporation's December 31 inventory Multiply by .20($60,000 / $300,000) Inventory profit To eliminate intercompany trade account receivable and payable $700,000 (600,000) $100,000 1,000 $101,000 $ 90,900
[b]
$900 $1,170,000 130,000 $200,000 600,000
[1]
(800,000) $ 500,000
[2]
$200,000 700,000 $900,000 $810,000 90,000 $900,000 $900 $5,000 $100,000
$ 300,000 $ 15,000 x .20 $ 3,000 $90,000
[7]
7-59
P7-34 Comprehensive Worksheet Problem a. Basic equity-method entries for 20X7: (1) Cash Investment in Sharp Company Stock Record dividend from Sharp Company: $25,000 x .80 Investment in Sharp Company Stock Income from Subsidiary Record equity-method income: $40,000 x .80 Income from Subsidiary Investment in Sharp Company Stock Amortize differential: $4,000 = ($50,000 / 10 years) x .80 20,000 20,000
(2)
32,000
32,000
(3)
4,000
4,000
b.
Eliminating entries, December 31, 20X7: E(1) Income from Subsidiary Dividends Declared Investment in Sharp Company Stock Eliminate income from subsidiary: $28,000 = $32,000 - $4,000 Income to Noncontrolling Interest Dividends Declared Noncontrolling Interest Assign income to noncontrolling interest: $6,600 = ($40,000 + $8,000 - $10,000 - $5,000) x .20 Common Stock Sharp Company Additional Paid-In Capital Retained Earnings, January 1 Differential Investment in Sharp Company Stock Noncontrolling Interest Eliminate beginning investment balance. $35,000 = $50,000 [($50,000 / 10) x 3 years] Buildings and Equipment Depreciation Expense Accumulated Depreciation Differential Assign differential: $20,000 = ($50,000 / 10 years) x 4 years 28,000 20,000 8,000
E(2)
6,600
5,000 1,600
E(3)
100,000 20,000 215,000 35,000
296,000 74,000
E(4)
50,000 5,000
20,000 35,000
7-60
P 7-34 (continued) E(5) Retained Earnings, January 1 Noncontrolling Interest Cost of Goods Sold Eliminate beginning inventory profit of Sharp Company. Retained Earnings, January 1 Cost of Goods Sold Eliminate beginning inventory profit of Randall Corporation. Sales Cost of Goods Sold Inventory Eliminate intercompany sale of inventory by Sharp Company. Sales Cost of Goods Sold Inventory Eliminate intercompany sale of inventory by Randall Corporation. Buildings and Equipment Retained Earnings, January 1 Depreciation Expense Accumulated Depreciation Eliminate intercorporate sale of equipment. Depreciation expense adjustment: Depreciation recorded ($50,000 / 8 years) Depreciation required ($75,000 / 20 years) Required decrease Accumulated depreciation adjustment: Required balance ($3,750 x 14 years) Balance recorded ($6,250 x 2 years) Required increase E(10) Accounts Payable Accounts Receivable Eliminate intercorporate receivable/payable. 6,400 1,600
8,000
E(6)
2,000
2,000
E(7)
45,000
35,000 10,000
E(8)
12,000
9,000 3,000
E(9)
25,000 17,500
2,500 40,000
$ 6,250 (3,750) $ 2,500 $52,500 (12,500) $40,000 10,000 10,000
7-61
P7-34 (continued) c. Randall Corporation and Sharp Company Consolidation Workpaper December 31, 20X7 Randall Corp. 500,000 20,400 28,000 548,400 416,000 Sharp Co. 250,000 30,000 280,000 202,000 Eliminations Debit Credit (7) 45,000 (8) 12,000 (1) 28,000 (5) 8,000 (6) 2,000 (7) 35,000 (8) 9,000 (9) 2,500 Consolidated 693,000 50,400 743,400
Item Sales Other Income Income from Subsidiary Credits Cost of Goods Sold
Deprec. and Amortization Other Expenses Debits Consolidated Net Income Income to Noncontrolling Interest Income, carry forward Ret. Earnings, Jan. 1
30,000 20,000 24,000 18,000 (470,000) (240,000)
(4)
5,000
564,000 52,500 42,000 (658,500) 84,900 (6,600) 78,300
78,400 345,900
40,000 215,000
(2)
6,600 96,600
56,500
78,400 424,300 (50,000) 374,300
40,000 255,000 (25,000) 230,000
(3)215,000 (5) 6,400 (6) 2,000 (9) 17,500 96,600
56,500 (1) 20,000 (2) 5,000
320,000 78,300 398,300 (50,000) 348,300
337,500
81,500
7-62
P7-34 (continued) Item Cash Accounts Receivable Inventory Buildings and Equipment Investment in Sharp Company Stock Differential Debits Accum. Depreciation Accounts Payable Bonds Payable Bond Premium Common Stock Additional Paid-In Capital Retained Earnings, from above Noncontrolling Interest Credits Randall Corp. 130,300 80,000 170,000 600,000 304,000 1,284,300 310,000 100,000 300,000 200,000 590,000 120,000 15,200 100,000 4,800 100,000 20,000 374,300 1,284,300 230,000 590,000 (10) 10,000 (3)100,000 (3) 20,000 (5) 337,500 1,600 579,100 81,500 (2) 1,600 (3) 74,000 579,100 348,300 74,000 1,622,300 (3) 35,000 Sharp Co. 10,000 70,000 110,000 400,000 (4) 50,000 (9) 25,000 Eliminations Debit Credit (10) 10,000 (7) 10,000 (8) 3,000 Consolidated 140,300 140,000 267,000 1,075,000 (1) 8,000 (3)296,000 (4) 35,000 (4) 20,000 (9) 40,000
1,622,300 490,000 105,200 400,000 4,800 200,000
7-63
P7-34 (continued) d. Randall Corporation and Subsidiary Consolidated Balance Sheet December 31, 20X7 $ 140,300 140,000 267,000 $ 547,300 $1,065,000 (486,000) 579,000 $1,126,300 $ 105,200 $ 400,000 4,800 $ 200,000 348,300 $ 548,300 68,000 616,300 $1,126,300 404,800
Cash Accounts Receivable Inventory Total Current Assets Buildings and Equipment Less: Accumulated Depreciation Total Assets Accounts Payable Bonds Payable Bond Premium Stockholders Equity: Controlling Interest: Common Stock Retained Earnings Total Controlling Interest Noncontrolling Interest Total Stockholders Equity Total Liabilities and Stockholders' Equity
Randall Corporation and Subsidiary Consolidated Income Statement Year Ended December 31, 20X7 Sales Other Income Cost of Goods Sold Depreciation and Amortization Expense Other Expenses Consolidated Net Income Income to Noncontrolling Interest Income to Controlling Interest $ 564,000 52,500 42,000 $ 693,000 50,400 $ 743,400 (658,500) $ 84,900 (6,600) $ 78,300
Randall Corporation and Subsidiary Consolidated Statement of Retained Earnings Year Ended December 31, 20X7 Retained Earnings, January 1, 20X7 Income to Controlling Interest, 20X7 $ 320,000 78,300 $ 398,300
7-64
Dividends Declared, 20X7 Retained Earnings, December 31, 20X7
(50,000) $ 348,300
7-65
P7-35 Comprehensive Consolidation Workpaper; Equity Method [AICPA Adapted] Fran Corp. and Subsidiary Consolidation Workpaper December 31, 20X9 Fran Corp Dr. (Cr.) Income Statement: Net Sales Equity in Brey's Income Gain on Sale of Warehouse Cost of Goods Sold Goodwill Impairment Loss Operating Expenses (including depreciation) Net Income Retained Earnings Statement: Balance, 1/1/X9 Net Income Dividends Paid Balance, 12/31/X9 Balance Sheet: Assets: Cash Accounts Receivable (net) Inventories Land, Plant and Equipment Accumulated Depreciation Investment in Brey Goodwill Total Assets Liabilities and Stockholders' Equity: Accounts Payable and Accrued Expenses Common Stock Additional Paid-In Capital Retained Earnings Total Liabilities and Equity Brey Inc. Dr. (Cr.) Adjustments and Eliminations Dr. Cr. 180,000 181,000 30,000 35,000 9,000 435,000 [6] [a] 2,000 164,000 [7] 162,000 Adjusted Balance (5,120,000)
(3,800,000) (1,500,000) [7] (181,000) [1] (30,000) 2,360,000 870,000 [5] [4] 1,100,000 (551,000) 440,000 [3] (190,000) [a]
3,068,000 35,000 1,547,000 (470,000)
(440,000) (551,000) (991,000)
(156,000) [2] (190,000) [a] 40,000 (306,000) [b]
156,000 435,000 591,000
[a] [1] [b]
164,000 40,000 204,000
(440,000) (470,000) (910,000)
570,000 860,000 1,060,000 1,320,000 (370,000) 891,000 4,331,000
150,000 350,000 410,000 680,000 [2] 54,000 2,000 60,000 [8] [7] [5] [3] [1] [2] [4] 86,000 18,000 30,000 9,000 141,000 750,000 35,000
720,000 1,124,000 1,452,000 2,024,000 (587,000) 25,000 4,758,000
(210,000) [6] [2]
1,380,000
(1,340,000) (1,700,000) (300,000) (991,000)
(594,000) [8] (400,000) [2] (80,000) [2] (306,000) [b]
86,000 400,000 80,000 591,000 1,273,000 [b] 204,000 1,273,000
(1,848,000) (1,700,000) (300,000) (910,000) (4,758,000)
(4,331,000) (1,380,000)
7-66
P7-35 (continued) Explanations of Adjustments and Eliminations: [1] To eliminate Fran's investment income recognized from Brey, Brey's dividends, and the change in the investment account during 20X9. Fran's investment is carried at equity at December 31, 20X9, adjusted for the amortization of the differential assigned to the machinery. [2] To eliminate reciprocal elements as of the beginning of the year from the investment and equity accounts and to assign the differential to machinery and goodwill. [3] To record amortization of the fair value in excess of book value of Brey's machinery at date of acquisition ($54,000 / 6). [4] [5] To record goodwill impairment loss of $35,000. To eliminate intercompany profit on the sale of the warehouse by Fran to Brey.
[6] To eliminate the excess depreciation on the warehouse building sold by Fran to Brey [($86,000 - $66,000) x 1/5 x ]. [7] To eliminate intercompany sales from Brey to Fran and the inter-company profit in Fran's ending inventory as follows: Sales Gross profit Cost Total $180,000 (90,000) $ 90,000* On hand $36,000 (18,000) $18,000 Sold $144,000 (72,000)* $ 72,000
* Cost of Goods Sold elimination: $162,000 = $90,000 + $72,000 [8] To eliminate Fran's intercompany balance to Brey for the merchandise it purchased.
7-67
P7-36A Fully Adjusted Equity Method a. Adjusted trial balance: Item Cash Accounts Receivable Inventory Buildings and Equipment Investment in Sharp Company Stock Cost of Goods Sold Depreciation and Amortization Other Expenses Dividends Declared Accumulated Depreciation Accounts Payable Bonds Payable Bond Premium Common Stock Additional Paid-In Capital Retained Earnings Sales Other Income Income from Subsidiary Randall Corporation Debit Credit $ 130,300 80,000 170,000 600,000 278,000 416,000 30,000 24,000 50,000 Sharp Company Debit Credit $ 10,000 70,000 110,000 400,000 202,000 20,000 18,000 25,000
$ 310,000 100,000 300,000 200,000 320,000 500,000 20,400 27,900 $1,778,300
$120,000 15,200 100,000 4,800 100,000 20,000 215,000 250,000 30,000 $855,000
$1,778,300
$855,000
7-68
P7-36A (continued) b. Fully adjusted equity-method entries for 20X7: (1) Cash Investment in Sharp Company Stock Record dividends from Sharp Company: $25,000 x .80 Investment in Sharp Company Stock Income from Subsidiary Record equity-method income: $40,000 x .80 Income from Subsidiary Investment in Sharp Company Stock Amortize differential: $4,000 = ($50,000 / 10 years) x .80 Investment in Sharp Company Stock Income from Subsidiary Recognize deferred profit on upstream sale of inventory: $8,000 x .80 Investment in Sharp Company Stock Income from Subsidiary Recognize deferred profit on downstream sale of inventory. Income from Subsidiary Investment in Sharp Company Stock Remove unrealized profit on upstream sale of inventory: $10,000 x .80 Income from Subsidiary Investment in Sharp Company Stock Remove unrealized profit on downstream sale of inventory. Investment in Sharp Company Stock Income from Subsidiary Recognize portion of gain on sale of equipment: $20,000 / 8 years 20,000 20,000
(2)
32,000
32,000
(3)
4,000
4,000
(4)
6,400
6,400
(5)
2,000
2,000
(6)
8,000
8,000
(7)
3,000
3,000
(8)
2,500
2,500
7-69
P7-36A (continued) c. Eliminating entries, December 31, 20X7: E(1) Income from Subsidiary Dividends Declared Investment in Sharp Company Stock Eliminate income from subsidiary. Income to Noncontrolling Interest Dividends Declared Noncontrolling Interest Assign income to noncontrolling interest: $6,600 = ($40,000 + $8,000 - $10,000 - $5,000) x .20 Common Stock Sharp Company Additional Paid-In Capital Retained Earnings, January 1 Differential Investment in Sharp Company Stock Noncontrolling Interest Eliminate beginning investment balance. Buildings and Equipment Depreciation Expense Accumulated Depreciation Differential Assign differential: $20,000 = ($50,000 / 10 years) x 4 years Investment in Sharp Company Stock Noncontrolling Interest Cost of Goods Sold Eliminate beginning inventory profit of Sharp Company. 27,900 20,000 7,900
E(2)
6,600
5,000 1,600
E(3)
100,000 20,000 215,000 35,000
296,000 74,000
E(4)
50,000 5,000
20,000 35,000
E(5)
6,400 1,600
8,000
7-70
P7-36A (continued) E(6) Investment in Sharp Company Stock Cost of Goods Sold Eliminate beginning inventory profit of Randall Corporation. Sales Cost of Goods Sold Inventory Eliminate intercompany sale of inventory by Sharp Company. Sales Cost of Goods Sold Inventory Eliminate intercompany sale of inventory by Randall Corporation. Buildings and Equipment Investment in Sharp Company Stock Depreciation Expense Accumulated Depreciation Eliminate intercorporate sale of equipment. Depreciation expense adjustment: Depreciation recorded ($50,000 / 8 years) Depreciation required ($75,000 / 20 years) Required decrease Accumulated depreciation adjustment: Required balance ($3,750 x 14 years) Balance recorded ($6,250 x 2 years) Required increase E(10) Accounts Payable Accounts Receivable Eliminate intercorporate receivable/payable. 2,000 2,000
E(7)
45,000
35,000 10,000
E(8)
12,000
9,000 3,000
E(9)
25,000 17,500
2,500 40,000
$6,250 (3,750) $2,500 $52,500 (12,500) $40,000 10,000 10,000
7-71
P7-36A (continued) d. Randall Corporation and Sharp Company Consolidation Workpaper December 31, 20X7 Randall Corp. 500,000 20,400 27,900 548,300 416,000 Sharp Co. 250,000 30,000 280,000 202,000 Eliminations Debit Credit (7) 45,000 (8) 12,000 (1) 27,900 (5) 8,000 (6) 2,000 (7) 35,000 (8) 9,000 (9) 2,500 Consolidated 693,000 50,400 743,400
Item Sales Other Income Income from Subsidiary Credits Cost of Goods Sold
Deprec. & Amortization Other Expenses Debits Consolidated Net Income Income to Noncontrolling Interest Income, carry forward Ret. Earnings, Jan. 1 Income, from above Dividends Declared Ret. Earnings, Dec. 31, carry forward
30,000 20,000 24,000 18,000 (470,000) (240,000)
(4)
5,000
564,000 52,500 42,000 (658,500) 84,900 (6,600) 78,300 320,000 78,300 398,300 (50,000) 348,300
78,300 320,000 78,300 398,300 (50,000) 348,300
40,000 215,000 40,000 255,000 (25,000) 230,000
(2)
6,600 96,500
56,500 56,500 (1) 20,000 (2) 5,000
(3)215,000 96,500
311,500
81,500
7-72
P7-36A (continued) Item Cash Accounts Receivable Inventory Buildings and Equipment Investment in Sharp Company Stock Differential Debits Accum. Depreciation Accounts Payable Bonds Payable Bond Premium Common Stock Additional Paid-In Capital Retained Earnings, from above Noncontrolling Interest Credits Randall Corp. 130,300 80,000 170,000 600,000 278,000 Sharp Co. 10,000 70,000 110,000 400,000 (4) (9) (5) (6) (9) (3) 50,000 25,000 6,400 2,000 17,500 35,000 Eliminations Debit Credit (10) 10,000 (7) 10,000 (8) 3,000 (1) 7,900 (3)296,000 (4) 35,000 (4) 20,000 (9) 40,000 Consolidated 140,300 140,000 267,000 1,075,000
1,258,300 310,000 100,000 300,000 200,000
590,000 120,000 15,200 100,000 4,800 100,000 20,000
1,622,300 490,000 105,200 400,000 4,800 200,000
(10) 10,000 (3)100,000 (3) 20,000 (5) 311,500 1,600
348,300 1,258,300
230,000 590,000
579,000
81,500 (2) 1,600 (3) 74,000 579,000
348,300 74,000 1,622,300
7-73
P7-37A Cost Method a. Journal entry recorded by Randall Corporation: Cash Dividend Income Record dividend from Sharp Company: $25,000 x .80 b. Eliminating entries, December 31, 20X7: E(1) Dividend Income Dividends Declared Eliminate dividend income from subsidiary. Income to Noncontrolling Interest Dividends Declared Noncontrolling Interest Assign income to noncontrolling interest: $6,600 = ($40,000 + $8,000 - $10,000 - $5,000) x .20 Common Stock Sharp Company Additional Paid-In Capital Retained Earnings, January 1 Differential Investment in Sharp Company Stock Noncontrolling Interest Eliminate investment balance at date of acquisition: $180,000 = ($300,000 - $100,000 - $20,000) Retained Earnings, January 1 Noncontrolling Interest Assign undistributed prior earnings of subsidiary to noncontrolling interest. Retained earnings, January 1, 20X7 Net assets of Sharp at acquisition $300,000 Common stock (100,000) Additional paid-in capital (20,000) Retained earnings at acquisition Net increase Proportion of stock held by noncontrolling interest Increase assigned to noncontrolling interest E(5) Buildings and Equipment Differential Assign differential at date of acquisition.
7-74
20,000
20,000
20,000
20,000
E(2)
6,600
5,000 1,600
E(3)
100,000 20,000 180,000 50,000
280,000 70,000
E(4)
7,000
7,000
$215,000
(180,000) $ 35,000 x $ .20 7,000 50,000 50,000
P7-37A (continued) E(6) Retained Earnings, January 1 Noncontrolling Interest Accumulated Depreciation Amortize differential for prior periods: ($50,000 / 10 years) x 3 years Depreciation Expense Accumulated Depreciation Amortize differential. Retained Earnings, January 1 Noncontrolling Interest Cost of Goods Sold Eliminate beginning inventory profit of Sharp Company. Retained Earnings, January 1 Cost of Goods Sold Eliminate beginning inventory profit of Randall Corporation. Sales Cost of Goods Sold Inventory Eliminate intercompany sale of inventory by Sharp Company. Sales Cost of Goods Sold Inventory Eliminate intercompany sale of inventory by Randall Corporation. Buildings and Equipment Retained Earnings, January 1 Depreciation Expense Accumulated Depreciation Eliminate intercorporate sale of equipment. Depreciation expense adjustment: Depreciation recorded ($50,000 / 8 years) Depreciation required ($75,000 / 20 years) Required decrease Accumulated depreciation adjustment: Required balance ($3,750 x 14 years) Balance recorded ($6,250 x 2 years) Required increase 12,000 3,000
15,000
E(7)
5,000
5,000
E(8)
6,400 1,600
8,000
E(9)
2,000
2,000
E(10)
45,000
35,000 10,000
E(11)
12,000
9,000 3,000
E(12)
25,000 17,500
2,500 40,000
$ 6,250 (3,750) $ 2,500 $52,500 (12,500) $40,000
7-75
P7-37A (continued) E(13) Accounts Payable Accounts Receivable Eliminate intercorporate receivable/payable. 10,000 10,000
c.
Randall Corporation and Sharp Company Consolidation Workpaper December 31, 20X7 Randall Corp. 500,000 20,400 20,000 540,400 416,000 Sharp Co. 250,000 30,000 280,000 202,000 Eliminations Debit Credit (10) 45,000 (11) 12,000 (1) 20,000 (8) 8,000 (9) 2,000 (10) 35,000 (11) 9,000 (12) 2,500 Consolidated 693,000 50,400 743,400
Item Sales Other Income Dividend Income Credits Cost of Goods Sold
Deprec. & Amortization Other Expenses Debits Consolidated Net Income Income to Noncontrolling Interest Income, carry forward Ret. Earnings, Jan. 1
30,000 20,000 24,000 18,000 (470,000) (240,000)
(7)
5,000
564,000 52,500 42,000 (658,500) 84,900 (6,600) 78,300
70,400 329,900
40,000 215,000
(2)
6,600 88,600
56,500
70,400 400,300 (50,000) 350,300
40,000 255,000 (25,000) 230,000
(3)180,000 (4) 7,000 (6) 12,000 (8) 6,400 (9) 2,000 (12) 17,500 88,600
56,500 (1) 20,000 (2) 5,000
320,000 78,300 398,300 (50,000) 348,300
313,500
81,500
7-76
P7-37A (continued) Item Cash Accounts Receivable Inventory Buildings and Equipment Investment in Sharp Company Stock Differential Debits Accum. Depreciation Accounts Payable Bonds Payable Bond Premium Common Stock Additional Paid-In Capital Retained Earnings, from above Noncontrolling Interest Credits Randall Corp. 130,300 80,000 170,000 600,000 280,000 1,260,300 310,000 100,000 300,000 200,000 590,000 120,000 15,200 100,000 4,800 100,000 20,000 350,300 230,000 (13) 10,000 (3)100,000 (3) 20,000 (6) (8) 313,500 3,000 1,600 573,100 81,500 (2) 1,600 (3) 70,000 (4) 7,000 573,100 348,300 74,000 1,622,300 Sharp Co. 10,000 70,000 110,000 400,000 (5) 50,000 (12) 25,000 (3) 50,000 Eliminations Debit Credit (13) 10,000 (10) 10,000 (11) 3,000 Consolidated 140,300 140,000 267,000 1,075,000 (3)280,000 (5) 50,000 (6) 15,000 (7) 5,000 (12) 40,000
1,622,300
490,000 105,200 400,000 4,800 200,000
1,260,300
590,000

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Chapter 07 - Intercompany Inventory Transactions

Chapter 07 - Intercompany Inventory Transactions

Chapter 07 - Intercompany Inventory Transactions

Chapter 07 - Intercompany Inventory Transactions

Chapter 07 - Intercompany Inventory Transactions

Chapter 07 - Intercompany Inventory Transactions

Chapter 07 - Intercompany Inventory Transactions

Chapter 07 - Intercompany Inventory Transactions

Chapter 07 - Intercompany Inventory Transactions

(12,000) $308,000 $235,000 250,000 $485,000 (15,000) $470,000

Chapter 07 - Intercompany Inventory Transactions

$32,000 $6,000 $9,000

Chapter 07 - Intercompany Inventory Transactions

Chapter 07 - Intercompany Inventory Transactions

Eliminating entry: E(1) Sales Cost of Goods Sold 750,000 750,000

Chapter 07 - Intercompany Inventory Transactions

Chapter 07 - Intercompany Inventory Transactions

Chapter 07 - Intercompany Inventory Transactions

Chapter 07 - Intercompany Inventory Transactions

$300,000 250,000 $550,000 60,000 $610,000 (124,000) $486,000

Chapter 07 - Intercompany Inventory Transactions

$ 2,000 7,500 15,000 (24,500) $ 98,500

Chapter 07 - Intercompany Inventory Transactions

Chapter 07 - Intercompany Inventory Transactions

Chapter 07 - Intercompany Inventory Transactions

Chapter 07 - Intercompany Inventory Transactions

Chapter 07 - Intercompany Inventory Transactions

Chapter 07 - Intercompany Inventory Transactions

Chapter 07 - Intercompany Inventory Transactions

Chapter 07 - Intercompany Inventory Transactions

20X8 $350,000 (10,000) $340,000 x .25 $ 85,000

20X9 $420,000 10,000 (50,000) $380,000 x .25 $ 95,000

Chapter 07 - Intercompany Inventory Transactions

$ 90,000 25,000 (15,000) $100,000 x .40 $ 40,000

Chapter 07 - Intercompany Inventory Transactions

Chapter 07 - Intercompany Inventory Transactions

Chapter 07 - Intercompany Inventory Transactions

Chapter 07 - Intercompany Inventory Transactions

Chapter 07 - Intercompany Inventory Transactions

Chapter 07 - Intercompany Inventory Transactions

$17,000 x .10 1,700 $13,100

Chapter 07 - Intercompany Inventory Transactions

Consolidation with Inventory Transfers and Other Comprehensive Income

Chapter 07 - Intercompany Inventory Transactions

Chapter 07 - Intercompany Inventory Transactions

400,000 200,000 790,000 10,000

Chapter 07 - Intercompany Inventory Transactions

Chapter 07 - Intercompany Inventory Transactions

Chapter 07 - Intercompany Inventory Transactions

55,700 55,700 6,000 4,000 65,700 4,200 6,500

486,200 75,000 41,200 200,000

(1) 12,000 (3)100,800

1,182,900 250,000 110,000 280,000 1,200 200,000

268,180 73,520 1,182,900

Chapter 07 - Intercompany Inventory Transactions

150,000 250,000 36,000

Chapter 07 - Intercompany Inventory Transactions

Chapter 07 - Intercompany Inventory Transactions

40,000 30,000 (240,000) (180,000) (2) 7,950 173,950

186,000 68,500 (254,500) 93,500 (7,950) 85,550

74,000 642,000 (35,000) 607,000 81,300 200,000 270,000 315,700

20,000 270,000 (5,000) 265,000 85,000 110,000 250,000