Ch05 Beams10e TB

Chapter 5 Test Bank INTERCOMPANY PROFIT TRANSACTIONS – INVENTORIES

Multiple Choice Questions LO1 1.

LO1 2.

The material sale of inventory items by a parent company to an affiliated company a. enters the consolidated revenue computation only if the transfer was the result of arm’s length bargaining. b. affects consolidated net income under a periodic inventory system but not under a perpetual inventory system. c. does not result in consolidated income until the merchandise is sold to outside parties. d. does not require a working paper adjustment if the merchandise was transferred at cost. Honeyeater Corporation owns a 40% interest in Nectar Company, acquired several years ago at a cost equal to book value and fair value. Nectar sells merchandise to Honeyeater for the first time in 2005. In computing income from the investee for 2005 under the equity method, Honeyeater uses which equation? a. 40% of Nectar’s income less 100% of the unrealized profit in Honeyeater's ending inventory. b. 40% of Nectar’s income plus 100% of the unrealized profit in Honeyeater's ending inventory. c. 40% of Nectar’s income less 40% of the unrealized profit in Honeyeater’s ending inventory. d. 40% of Nectar’s income plus 40% of the unrealized profit in Honeyeater’s ending inventory.

LO1 3.

In situations where there are routine inventory sales between parent companies and subsidiaries, when preparing the consolidation statements, which of the following line items is indifferent to the sales being either upstream or downstream? a. b. c. d.

Consolidated retained earnings. Consolidated gross profit. Noncontrolling interest expense. Consolidated net income. ©2009 Pearson Education, Inc. publishing as Prentice Hall 5-1

LO2 4.

The consolidation procedures for intercompany similar for upstream and downstream sales

sales

are

a. if the merchandise is transferred at cost. b. under a periodic inventory system but not under a perpetual inventory system. c. if the merchandise is immediately sold to outside parties. d. when the subsidiary is 100% owned. Use the following information to answer questions 5 through 9. Eagle Corporation owns 80% of Flyway Inc.’s common stock that was purchased at its underlying book value. The two companies report the following information for 2004 and 2005. During 2004, one company sold inventory to the other company for $50,000 which cost the transferor $40,000. As of the end of 2004, 30% of the inventory was unsold. In 2005, the remaining inventory was resold outside the consolidated entity. 2004 Selected Data: Sales Revenue Cost of Goods Sold Other Expenses Net Income

$ $

Dividends Paid 2005 Selected Data: Sales Revenue Cost of Goods Sold Other Expenses Net Income

LO2 5.

Dividends Paid

$ $

Eagle 600,000 320,000 100,000 1800,000

$ $

Flyway 320,000 155,000 89,000 76,000

19,000

0

Eagle 580,000 300,000 130,000 150,000

Flyway 445,000 180,000 171,000 94,000

16,000

$ $

5,000

If the sale referred to above was a downstream sale, the total sales revenue reported in the consolidated income statement for 2004 would be? a. b. c. d.

$870,000. $880,000. $920,000. $970,000. ©2009 Pearson Education, Inc. publishing as Prentice Hall 5-2

LO2 6.

LO2 7.

LO2 8.

If the sale referred to above was a downstream sale, by what amount must Inventory be reduced to reflect the correct balance as of the end of 2004? a. b. c. d.

For 2004, consolidated net income will be what amount if the intercompany sale was downstream? a. b. c. d.

$475,600. $476,800. $486,400. $506,000.

If the intercompany sale mentioned above was an upstream sale, what will be the reported amount of total sales revenue for 2005? a. b. c. d.

LO2 9.

$ 3,000. $10,000. $14,000. $20,000.

$1,025,000. $1,900,000. $1,950,000. $2,000,000.

If the intercompany sale was an upstream sale, the total amount of consolidated cost of goods sold for 2005 will be? a. b. c. d.

$300,000. $430,000. $470,000. $477,000.

©2009 Pearson Education, Inc. publishing as Prentice Hall 5-3

Use the following information to answer questions 9 and 10. Duck Corporation acquired a 70% interest in Whistle Corporation on January 1, 2005, when Whistle’s book values were equal to their fair values. During 2005, Duck sold merchandise that cost $75,000 to Whistle for $110,000. On December 31, 2005, threefourths of the merchandise acquired from Duck remained in Whistle’s inventory. Separate incomes (investment income not included) of Duck and Whistle are as follows: Duck Sales Revenue Cost of Goods Sold Operating Expenses Separate incomes

LO3 10.

LO3 11.

$ $

150,000 90,000 12,000 48,000

Whistle $ $

200,000 70,000 15,000 115,000

The consolidated income statement for Duck Corporation and subsidiary for the year ended December 31, 2005 will show consolidated cost of sales of? a. b. c. d.

$ 50,000. $ 76,250. $133,750. $160,000.

Duck’s income from Whistle for 2005 is? a. b. c. d.

$54,250. $56,000. $62,125. $80,500.


LO3 12.

Pond Co. a 55%-owned subsidiary of Goose Inc. made following entry to record a sale of merchandise to Goose: Accounts Receivable Sales Revenue

60,000

the

60,000

All Pond sales are at 125% of cost. One-third of this merchandise remained in the Goose’s inventory at year-end. A working paper entry to eliminate unrealized profits from consolidated inventory would include a credit to Inventory in the amount of a. b. c. d.

$ 4,000. $ 5,000. $ 8,000. $10,000.

Use the following information to answer questions 13, 14, and 15. Wren Corporation acquired 80% ownership of Arid Incorporated, at a time when Wren’s investment (using the equity method) and Arid’s book values were equal. During 2005, Wren sold goods to Arid for $200,000 making a gross profit percentage of 20%. Half of these goods remained unsold in Arid’s inventory at the end of the year. Income statement information for Wren and Arid for 2005 were as follows:

Sales Revenue Cost of Goods Sold Operating Expenses Separate incomes LO3 13.

$ $

Wren 1,000,000 500,000 500,000 250,000

$ $

Arid 600,000 400,000 80,000 120,000

The 2005 consolidated income statement showed cost of goods sold of a. b. c. d.

$720,000. $880,000. $900,000. $920,000.


LO3 14.

The 2005 consolidated income statement showed income from Arid of a. b. c. d.

LO3 15.

The 2005 consolidated income statement showed noncontrolling income of a. b. c. d.

LO4 16.

$56,000. $76,000. $80,000. $96,000.

$ 2,000. $ 8,000. $20,000. $24,000.

On January 1, 2004, Darter Industries acquired an 80% interest in Thermal Company to insure a steady supply of Thermal’s inventory that Darter uses in its own manufacturing businesses. Thermal sold 100% of its output to Darter during 2004 and 2005 at a markup of 120% of Thermal’s cost. Darter had $9,600 of these items remaining in its January 1, 2005 inventory and no items on December 31, 2005. If Darter neglected to eliminate unrealized profits from all intercompany sales from Thermal, consolidated net income for 2005 was a. b. c. d.

overstated by $320. understated by $400. overstated by $2,400. unaffected because Darter buys 100% of Thermal’s output.

Use the following information for questions 17 and 18: Grebe Company routinely receives goods from its 80%-owned subsidiary, Swamp Corporation. In 2004, Swamp sold merchandise that cost $80,000 to Grebe for $100,000. Half of this merchandise remained in Grebe’s December 31, 2004 inventory. During 2005, Swamp sold merchandise that cost $160,000 to Grebe for $200,000. $62,500 of the 2005 merchandise inventory remained in Grebe’s December 31, 2005 inventory. Selected income statement information for the two affiliates for the year 2005 was as follows: Grebe Swamp Sales Revenue $500,000 $400,000 Cost of Goods Sold 400,000 320,000 Gross profit $100,000 $ 80,000


LO4 17.

Consolidated cost of goods sold for Grebe and Subsidiary for 2005 were a. b. c. d.

LO4 18.

What amount of unrealized profit did Grebe Company have at the end of 2004? a. b. c. d.

LO5 19. 3.

LO5 20.

$512,000. $526,000. $522,500. $528,000.

$10,000. $12,500. $50,000. $62,500.

A parent company regularly sells merchandise to its 70%-owned subsidiary. Which of the following statements describes the computation of minority interest income? a. The subsidiary’s net income times 30%. b. (The subsidiary’s net income x 30%) + unrealized profits in the beginning inventory – unrealized profits in the ending inventory. c. (The subsidiary’s net income + unrealized profits in the beginning inventory – unrealized profits in the ending inventory) x 30%. d. (The subsidiary’s net income + unrealized profits in the ending inventory – unrealized profits in the beginning inventory) x 30%. Squid Corporation, a 90%-owned subsidiary of Penguin Corporation, sold inventory items to its parent at a $24,000 profit in 2005. Penguin resold one-third of this inventory to outside entities. Squid reported net income of $100,000 for 2005. Minority interest income that will appear in the consolidated income statement for 2005 is a. b. c. c.

$ 8,400. $ 9,200. $10,000. $10,800.


LO3 Exercise 1 Petrel Corporation acquired a 60% interest in Salt Corporation on January 1, 2005, at a cost equal to book value and fair value. Salt reports net income of $880,000 for 2005. Petrel regularly sells merchandise to Salt at 120% of Petrel’s cost. The intercompany sales information for 2004 is as follows: Intercompany sales at selling price Value of merchandise remaining unsold by Salt

$ 672,000 132,000

Required: 1. Determine the unrealized profit in Salt’s inventory at December 31, 2004. 2. Compute Petrel’s income from Salt for 2005. LO3&4 Exercise 2 Frigatebird Co. bought 75% of the outstanding voting stock of Cliff Corporation at book value several years ago. Frigatebird sells merchandise to Cliff at 125% above Frigatebird’s cost. Intercompany sales from Frigatebird to Cliff for 2005 were $650,000. Unrealized profits in Cliff’s December 31, 2004 inventory and December 31, 2005 inventory were $27,000 and $38,000, respectively. Cliff reported net income of $900,000 for 2005. Required: 1. Determine Frigatebird’s income from Cliff for 2005. 2. In General Journal format, prepare consolidation working paper entries to eliminate the effects of the intercompany inventory sales assuming the perpetual inventory method is used.


LO3&4 Exercise 3 Tern Corporation acquired an 80% interest in Harbor Corporation several years ago when Harbor’s book values and fair values were equal. Separate company income statements for Tern and Harbor for the year ended December 31, 2005 are summarized as follows:

Sales Revenue Income from Harbor Cost of Goods Sold Expenses Net Income

$ ( ( $

Tern 1,000,000 $ 80,000 600,000 )( 200,000 )( 280,000 $

Harbor 600,000 300,000 ) 200,000 ) 100,000

During 2004 Tern sold merchandise that cost $120,000 to Harbor for $180,000. Half of this merchandise remained in Harbor’s inventory at December 31, 2004. During 2005, Tern sold merchandise that cost $150,000 to Harbor for $225,000. One-third of this merchandise remained in Harbor’s December 31, 2005 inventory. Required: Prepare a consolidated Subsidiary for 2005.

income

statement

for

Tern

Corporation

and

LO3&4 Exercise 4 Egret Corporation acquired an 80% interest in Tick Corporation at book value in 2004. During 2005, Egret sold $148,000 of merchandise to Tick at 160% of Egret’s cost. Tick’s beginning and ending inventories for 2005 were $38,000 and $44,000, respectively. Income statement information for both companies for 2005 is as follows:

Sales Revenue Income from Tick Cost of Goods Sold Expenses Net Income

$ ( ( $

Egret 330,000 $ 30,400 190,000 )( 65,000 )( 105,400 $

Tick 180,000 112,000 ) 30,000 ) 38,000

Required: Prepare a consolidated income statement for Egret Corporation and Subsidiary for 2005.


LO4 Exercise 5 Ibis Corporation acquired 100% of Lake Co. common stock on January 1, 2003, for $550,000 when the book values of Lake’s assets and liabilities were equal to their fair values and Lake’s stockholders’ equity consisted of $280,000 of Capital Stock and $270,000 of Retained Earnings. Ibis’ separate income (excluding Lake) was $900,000, 850,000 and 950,000 in 2003, 2004 and 2005 respectively. Ibis sold inventory to Lake during 2003 at a gross profit of $40,000 and 30 percent remained at Lake at the end of the year. The remaining 30 percent was sold in 2004. At the end of 2004, Ibis has $25,000 of inventory received from Lake from a sale of $200,000 which cost Lake $160,000. There are no unrealized profits in the inventory of Ibis or Lake at the end of 2005. Ibis uses the equity method in its separate books. Select financial information for Lake follows:

Sales Cost of Sales Gross Profit Operating Expenses Net Income

$

2003 800,000 420,000 380,000 300,000 80,000

$

2004 850,000 440,000 410,000 320,000 90,000

$

2005 950,000 500,000 450,000 380,000 70,000

Required: Prepare a schedule to determine Ibis Corporation’s net income for 2003, 2004, and 2005.


LO3&4 Exercise 6 Bittern Corporation acquired a 70% interest in Reed Corporation at book value several years ago. Reed purchases its entire inventory from Bittern at 140% of Bittern’s cost. During 2005, Bittern sold $160,000 of merchandise to Reed. Reed’s beginning and ending inventories for 2005 were $49,000 and $33,600, respectively. Income statement information for both companies for 2005 is as follows:

Sales Revenue Income from Reed Cost of Goods Sold Expenses Net Income

$ ( ( $

Bittern 400,000 $ 75,600 210,000 )( 85,000 )( 180,600 $

Reed 220,000 72,000 ) 40,000 ) 108,000

Required: Prepare a consolidated income statement for Bittern Corporation and Subsidiary for 2005. LO 3&4 Exercise 7 Egret Corporation paid $24,800 for an 80% interest in Plume Corporation on January 1, 2004, at which time Plume’s stockholders’ equity consisted of $15,000 of Common Stock and $6,000 of Retained Earnings. The fair values of Plume Corporation’s assets and liabilities were identical to recorded book values when Egret acquired its 80% interest. Plume Corporation reported net income of $4,000 and paid dividends of $2,000 during 2004. Egret Corporation as follows:

sold inventory items to Plume during 2004 and 2005

Egret’s sales to Plume Egret’s cost of sales to Plume Unrealized profit at year-end The accounts payable inventory purchases.

of

Plume

$

2004 5,000 3,000 1,000

include

$1,500

$

2005 6,000 3,500 1,500 owed

to

Egret


for

The following conversion to equity schedule provides information that may be helpful in completing the consolidation working papers for the year ended December 31, 2005. Retained Earnings

Investment in Plume

Income from Plume

Prior years: Inventory profit

$ (

1,000 )

$( 1,000 )

1,000 )

$ 1,000 $( 1,500 ) $( 1,500 )

Current year: Inventory profit-2004 Inventory profit-2005 Totals

$ $ $ (

$ 1,000 $(1,500 ) $( 500 )

Required: Financial statements of Egret and Plume appear in the first two columns of the partially completed working papers. Complete the consolidation working papers for Egret Corporation and Subsidiary for the year ended December 31, 2005.


Egret Corporation and Subsidiary Consolidation Working Papers for the year ended December 31, 2005 Eliminations Egret Plume Debit Credit INCOME STATEMENT Sales $ Income from Plume

$20,000

43,000 7,200

Cost of Sales

( 22,000) (

8,000)

Other expenses Net income

( 12,200) ( 16,000

3,000) 9,000

Retained Earnings 1/1 Add: Net income Less: Dividends Retained Earnings 12/31 BALANCE SHEET Cash Accounts Receivable-net Dividend Receivable

10,000

8,000

16,000

9,000

( 10,000) ( $

Inventories Goodwill Equipment and Buildings-net Investment in Plume TOTAL ASSETS $ LIAB. & EQUITY Accounts payable Dividend payable Other debt Capital stock Retained Earnings 1/1 Noncontrl. Interest 12/31 Noncontrl. Interest $ LIAB. & EQUITY

Balance Sheet

5,000)

16,000

$12,000

5,400

3,000

14,000

10,000

2,000 18,000

8,000

24,000

31,000

29,600 93,000

$52,000

17,500 7,000 12,500 40,000

12,500 2,500 10,000 15,000

16,000

12,000

93,000

$52,000


LO4 Exercise 8 Cardinal Corporation acquired a 90% interest in Robin Corporation at book value in 2004. During 2005, Cardinal sold $220,000 of merchandise to Robin at a gross profit rate of 30%. Robin’s beginning and ending inventories for 2005 were $30,000 and $40,000, respectively. Income statement information for both companies for 2005 is as follows:

Sales Revenue Income from Robin Cost of Goods Sold Expenses Net Income

$ ( ( $

Cardinal 830,000 $ 36,900 530,000 )( 179,000 )( 157,900 $

Robin 290,000 197,000 ) 52,000 ) 41,000

Required: Prepare a consolidated income statement for Cardinal Corporation and Subsidiary for 2005. LO5 Exercise 9 Plover Corporation acquired 80% of Artic Inc. equity on January 1, 2003, when the book values of Artic’s assets and liabilities were equal to their fair values. Plover separate income (excluding Artic) was $1,800,000, 1,700,000 and 1,900,000 in 2003, 2004 and 2005 respectively. Plover sold inventory to Artic during 2003 at a gross profit of $48,000 and one quarter remained at Artic at the end of the year. The remaining 25 percent was sold in 2004. At the end of 2004, Plover has $25,000 of inventory received from Artic from a sale of $100,000 which cost Artic $80,000. There are no unrealized profits in the inventory of Plover or Artic at the end of 2005. Plover a uses the equity method in its separate books. Select financial information for Artic follows:

Sales Cost of Sales Gross Profit Operating Expenses Net Income

$

2003 790,000 420,000 370,000 300,000 70,000

$

2004 840,000 440,000 400,000 320,000 80,000

$


2005 940,000 500,000 440,000 350,000 90,000

Required: Prepare a schedule to determine Plover Corporation’s net income for 2003, 2004, and 2005. LO5 Exercise 10 On January 1, 2004, Lapwing Corporation purchased 70% of the common stock of Forage Corporation for $320,000 when Forage had Common Stock outstanding of $100,000 and Retained Earnings of $200,000. Any excess differential was attributed to goodwill. At the end of 2004, Lapwing and Forage had unrealized inventory profits from intercompany sales of $6,000 and $8,000, respectively. These year-end profit amounts were realized in 2005. At the end of 2005 Lapwing held inventory acquired from Forage with a $10,000 unrealized profit. Lapwing reported separate income of $100,000 for 2005 and paid dividends of $30,000. Forage reported separate income of $70,000 for 2005 and paid dividends of $20,000. Required: Compute the amount of consolidated net income for 2005.


SOLUTIONS Multiple Choice Questions 1.

c

2.

c

3.

b

4.

d

5.

a

6.

a

7.

b

8.

a

9.

d

2004 combined sales Less: 2004 intercompany sales Consolidated sales

$920,000 (

Selling price Less: Cost of sales Original unrealized profit Unsold percentage Unrealized profit

Combined 2005 sales Less: 2005 intercompany sales Consolidated sales Combined cost of sales Less: 2005 intercompany sales Less: Unrealized profit in the 2005 beginning inventory from 2004 Plus: Unrealized profit in 2005 ending inventory Consolidated cost of sales

50,000 ) $870,000 $

$

50,000 40,000 10,000 30% 3,000

$

1,025,000

$

0 1,025,000 $

480,000 0

( $

3,000 ) 0 477,000


10.

b

Combined cost of sales Less: Intercompany sales revenue Plus: Unrealized profit taken out of inventory (75%)x(35,000) = Consolidated cost of sales

$ ( $

26,250 76,250

$

54,250

11.

a

($115,000 x 70%) - $26,250

12.

a

Selling price Less: Cost of sales Unrealized profit Unsold fraction Credit to Inventory

13.

a

500,000+400,000200,000+20,000

14.

b

120,000*.8-200,000*.2*.5

15.

d

Downstream situation

16.

a

It will be amount of the share of the margin in the carried over $1,600) =

17.

18.

c

=

160,000 110,000 )

$ (

$

60,000 48,000 ) 12,000 1/3 4,000

overstated by the minority interests’ $1,600 of profit $9,600 of materials to 2005 = (20% x

Grebe plus Swamp’s separate cost of goods sold = $400,000 + $320,000 = Less: Intercompany sales = Adjust: Profit +12,500-10,000 = Consolidated COGS =

$

$ ( $

320

720,000 200,000 ) 2,500 522,500 )

b ©2009 Pearson Education, Inc. publishing as Prentice Hall 5-17

19.

a

20.

a

Minority interest income: Squid’s reported income Less: Unrealized profits in the ending inventory Squid’s adjusted income Minority interest percentage Minority interest income

$ ( $ $

100,000 16,000 ) 84,000 10% 8,400


Exercise 1 Requirement 1 Unrealized profit in inventory: $132,000 – ($132,000/1.2) =

$

22,000

Requirement 2 Income from Salt for 2005: Share of Salt’s income ($880,000 x 60%) Less: Unrealized profit in ending inventory Income from Salt

$ ( $

528,000 22,000 ) 506,000

Exercise 2 Requirement 1 Income from Cliff: Share of Cliff’s reported net income $900,000 x 75% = Add: Unrealized profit in beginning inventory Less: Unrealized profit in ending inventory Income from Cliff

$ ( $

675,000 27,000 38,000 ) 664,000 )

Requirement 2 Sales Revenue Cost of Goods Sold

Debit 650,000

Credit 650,000

To eliminate intercompany sales and purchases Investment in Cliff Cost of Goods Sold

27,000 27,000

To recognize previously deferred unrealized profits from the beginning inventory Cost of Goods Sold Inventory

38,000 38,000

To eliminate intercompany profit in the ending inventory from cost of goods sold and inventory ©2009 Pearson Education, Inc. publishing as Prentice Hall 5-19

Exercise 3 Tern Corporation and Subsidiary Consolidated Income Statement for the year ended December 31, 2005 Sales (combined $1,600,000 - $225,000 intercompany Cost of Goods Sold (see below) Expenses Minority Interest Consolidated net income Consolidated cost of goods sold computation: Combined cost of sales ($600,000 + $300,000) Less: Intercompany sales Less: Unrealized profit in beginning inventory ($180,000 - $120,000) x 1/2 Add: Unrealized profit in ending inventory ($225,000 - $150,000) x 1/3 Consolidated Cost of Goods Sold

$ ( ( ( $

1,375,000 670,000) 400,000) 20,000) 285,000

$ (

900,000 225,000)

(

30,000)

$

25,000 670,000

$ ( ( ( $

362,000 156,250) 95,000) 7,600) 103,150

$ (

302,000 148,000)

(

14,250)

Exercise 4 Egret Corporation and Subsidiary Consolidated Income Statement for the year ended December 31, 2005 Sales (combined $330,000 + $180,000 - $148,000) Cost of Goods Sold (see below) Expenses Minority Interest Consolidated net income Consolidated cost of goods sold computation: Combined cost of sales ($190,000 + $112,000) Less: Intercompany sales Less: Unrealized profit in beginning inventory ($38,000 – ($38,000/1.6) Add: Unrealized profit in ending inventory ($44,000 – ($44,000/1.6) Consolidated Cost of Goods Sold

$

16,500 156,250


Exercise 5 Ibis’s separate income Add: Lake’s reported net income Unrealized profit in 2003 income Unrealized profit in 2004 income

2003 2004 $ 900,000 $ 850,000 $ 80,000 90,000 ( 12,000 ) 12,000 ( 5,000 )

Consolidated net income

$ 968,000

$ 947,000

2005 950,000 70,000 5,000

$ 1,025,000

Exercise 6 Preliminary computations: Unrealized profit in beginning inventory equals: $49,000 – ($49,000/1.4) =

$

14,000

Unrealized profit in ending inventory: $33,600 – ($33,600/1.4) =

$

9,600

Consolidated net income: Sales (combined $620,000 - $160,000 intercompany Cost of Goods Sold (see below) Expenses Minority Interest Consolidated net income

$ ( ( ( $

460,000 117,600) 125,000) 32,400) 185,000

$ ( (

282,000 160,000) 14,000) 9,600 117,600

Consolidated cost of goods sold computation: Combined cost of sales ($210,000 + $72,000) Less: Intercompany sales Less: Unrealized profit in beginning inventory Add: Unrealized profit in ending inventory Consolidated Cost of Goods Sold

$


Exercise 7 Egret Corporation and Subsidiary Consolidation Working Papers for the year ended December 31, 2005 Eliminations Egret Plume Debit Credit INCOME STATEMENT Sales $ Income from Plume Cost of Sales ( Other expenses ( Minority income Net income Retained Earnings 1/1 Add: Net income Less: Dividends ( Retained Earnings 12/31 $ BALANCE SHEET Cash Net Receivables Dividend Receivable Inventories Goodwill Plant assets-net Investment in Plume

43,000

$20,000

7,200

b $6,000 a 500 e 6,700 d 1,500

22,000) ( 12,200) (

8,000) 3,000)

16,000

9,000

10,000 16,000 10,000) (

a 8,000 f 9,000 5,000)

NonCntrl.

Balance Sheet $57,000

b c

6,000 1,000

1,000 8,000 e

4,000

( 24,500) ( 15,200) 1,800 ( 1,800) 15,500 9,000 15,500 (1,000) ( 10,000)

16,000

$12,000

$14,500

5,400 14,000

3,000 10,000

h

1,500

8,400 22,500

8,000

g d

2,000 1,500

a e f

1,500 2,700 26,400

2,000 18,000 24,000

f

8,000

c

1,000

31,000

29,600

TOTAL ASSETS $ 93,000 LIAB. & EQUITY Accounts payable 17,500 Dividend payable 7,000 Other debt 12,500 Capital stock 40,000 Retained Earnings 16,000 1/1 Noncntrl. Interest 12/31 Noncntrl. Interest TOTAL LIAB. & $93,000 EQUITY

24,500 8,000 55,000

$52,000 12,500 2,500 10,000 15,000

$118,400 h g

1,500 2,000

28,500 7,500 22,500 40,000

f 15,000

12,000

14,500 f

4,600

4,600 5,400

$52,000


5,400 $118,400

Exercise 8

Cardinal Corporation and Subsidiary Consolidated Income Statement for the year ended December 31, 2005

Sales (combined $830,000 + $290,000 - $220,000) Cost of Goods Sold (see below) Expenses Minority Interest Consolidated net income Consolidated cost of goods sold computation: Combined cost of sales ($530,000 + $197,000) Less: Intercompany sales Less: Unrealized profit in beginning inventory ($30,000 x .30) Add: Unrealized profit in ending inventory ($40,000 x .30) Consolidated Cost of Goods Sold

$ ( ( ( $

900,000 510,000) 231,000) 4,100) 154,900

$ (

727,000 220,000)

(

9,000)

$

12,000 510,000

Exercise 9 Plover’s separate income Add: Artic’s net income Unrealized profit in 2003 income Unrealized profit in 2004 income Subtract: Noncontrolling Interest Consolidated net income

$ (

2003 2004 1,800,000 $ 1,700,000 70,000 80,000 12,000 ) 12,000 (

( $

14,000 ) ( 1,844,000

2005 $ 1,900,000 90,000

5,000 )

5,000

15,000 ) (

$ 1,772,000

17,000 )

$ 1,978,000

2004 Noncontrolling Interest =(80,000-5,000)*.2 2005 Noncontrolling Interest =(90,000+5,000)*.2


Exercise 10 Lapwing separate income: Add: Realized profit in beginning inventory (given) Less: Unrealized profit in ending inventory (given)

$

(

10,000 )

Lapwing adjusted separate income

$

96,000

$

54,600 150,600

Forage separate income: Separate income as reported Add: Realized beginning inventory profit Equals: Adjusted Forage income Majority percentage Income from Forage Consolidated net income

100,000 6,000

$

70,000 8,000 78,000 70% 54,600


Ch05 Beams10e TB

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