Exam 5: Consolidated Financial Statements - Intercompany Asset Transactions

Gargiulo Company, a 90% owned subsidiary of Posito Corporation, sells inventory to Posito at a 25% profit on selling price. The following data are available pertaining to intra-entity purchases. Gargiulo was acquired on January 1, 2010. Assume the equity method is used. The following data are available pertaining to Gargiulo's income and dividends. For consolidation purposes, what amount would be debited to January 1 retained earnings for the 2011 consolidation worksheet entry with regard to the unrealized gross profit of the 2010 intra-entity transfer of merchandise?

On January 1, 2011, Pride, Inc. acquired 80% of the outstanding voting common stock of Strong Corp. for $364,000. There is no active market for Strong's stock. Of this payment, $28,000 was allocated to equipment (with a five-year life) that had been undervalued on Strong's books by $35,000. Any remaining excess was attributable to goodwill which has not been impaired. As of December 31, 2011, before preparing the consolidated worksheet, the financial statements appeared as follows: During 2011, Pride bought inventory for $112,000 and sold it to Strong for $140,000. Only half of this purchase had been paid for by Strong by the end of the year. 60% of these goods were still in the company's possession on December 31. What is the total of consolidated operating expenses?

Walsh Company sells inventory to its subsidiary, Fisher Company, at a profit during 2010. One-third of the inventory is sold by Walsh uses the equity method to account for its investment in Fisher. In the consolidation worksheet for 2010, which of the following choices would be a credit entry to eliminate unrealized intra-entity gross profit with regard to the 2010 intra-entity sales?

Patti Company owns 80% of the common stock of Shannon, Inc. In the current year, Patti reports sales of $10,000,000 and cost of goods sold of $7,500,000. For the same period, Shannon has sales of $200,000 and cost of goods sold of $160,000. During the year, Patti sold merchandise to Shannon for $60,000 at a price based on the normal markup. At the end of the year, Shannon still possesses 30 percent of this inventory. Compute consolidated sales.

Pepe, Incorporated acquired 60% of Devin Company on January 1, 2010. On that date Devin sold equipment to Pepe for $45,000. The equipment had a cost of $120,000 and accumulated depreciation of $66,000 with a remaining life of 9 years. Devin reported net income of $300,000 and $325,000 for 2010 and 2011, respectively. Pepe uses the equity method to account for its investment in Devin. Compute the non-controlling interest in the net income of Devin for 2011.

Wilson owned equipment with an estimated life of 10 years when it was acquired for an original cost of $80,000. The equipment had a book value of $50,000 at January 1, 2010. On January 1, 2010, Wilson realized that the useful life of the equipment was longer than originally anticipated, at ten remaining years. On April 1, 2010 Simon Company, a 90% owned subsidiary of Wilson Company, bought the equipment from Wilson for $68,250 and for depreciation purposes used the estimated remaining life as of that date. The following data are available pertaining to Simon's income and dividends: Compute the amortization of gain through a depreciation adjustment for 2011 for consolidation purposes.

Gargiulo Company, a 90% owned subsidiary of Posito Corporation, sells inventory to Posito at a 25% profit on selling price. The following data are available pertaining to intra-entity purchases. Gargiulo was acquired on January 1, 2010. Assume the equity method is used. The following data are available pertaining to Gargiulo's income and dividends. Compute the equity in earnings of Gargiulo reported on Posito's books for 2010.

On January 1, 2010, Smeder Company, an 80% owned subsidiary of Collins, Inc., transferred equipment with a 10-year life (six of which remain with no salvage value) to Collins in exchange for $84,000 cash. At the date of transfer, Smeder's records carried the equipment at a cost of $120,000 less accumulated depreciation of $48,000. Straight-line depreciation is used. Smeder reported net income of $28,000 and $32,000 for 2010 and 2011, respectively. All net income effects of the intra-entity transfer are attributed to the seller for consolidation purposes. Compute Collins' share of Smeder's net income for 2011.

Wilson owned equipment with an estimated life of 10 years when it was acquired for an original cost of $80,000. The equipment had a book value of $50,000 at January 1, 2010. On January 1, 2010, Wilson realized that the useful life of the equipment was longer than originally anticipated, at ten remaining years. On April 1, 2010 Simon Company, a 90% owned subsidiary of Wilson Company, bought the equipment from Wilson for $68,250 and for depreciation purposes used the estimated remaining life as of that date. The following data are available pertaining to Simon's income and dividends: Compute the amortization of gain through a depreciation adjustment for 2010 for consolidation purposes.

Yoderly Co., a wholly owned subsidiary of Nelson Corp., sold goods to Nelson near the end of 2011. The goods had cost Yoderly $105,000 and the selling price was $140,000. Nelson had not sold any of the goods by the end of the year. Required: Prepare Consolidation Entry TI and Consolidation Entry G that are required for 2011.

King Corp. owns 85% of James Co. King uses the equity method to account for this investment. During 2011, King sells inventory to James for $500,000. The inventory originally cost King $420,000. At 12/31/11, 25% of the goods were still in James' inventory. Required: Prepare the Consolidation Entry TI and Consolidation Entry G for the consolidation worksheet.

Pepe, Incorporated acquired 60% of Devin Company on January 1, 2010. On that date Devin sold equipment to Pepe for $45,000. The equipment had a cost of $120,000 and accumulated depreciation of $66,000 with a remaining life of 9 years. Devin reported net income of $300,000 and $325,000 for 2010 and 2011, respectively. Pepe uses the equity method to account for its investment in Devin. Compute the income from Devin reported on Pepe's books for 2010.

On January 1, 2011, Pride, Inc. acquired 80% of the outstanding voting common stock of Strong Corp. for $364,000. There is no active market for Strong's stock. Of this payment, $28,000 was allocated to equipment (with a five-year life) that had been undervalued on Strong's books by $35,000. Any remaining excess was attributable to goodwill which has not been impaired. As of December 31, 2011, before preparing the consolidated worksheet, the financial statements appeared as follows: During 2011, Pride bought inventory for $112,000 and sold it to Strong for $140,000. Only half of this purchase had been paid for by Strong by the end of the year. 60% of these goods were still in the company's possession on December 31. What is the consolidated total of non-controlling interest appearing in the balance sheet?

For each of the following situations (1 - 10), select the correct entry (A - E) that would be required on a consolidation worksheet. (A.) Debit retained earnings. (B.) Credit retained earnings. (C.) Debit investment in subsidiary. (D.) Credit investment in subsidiary. (E.) None of the above. ___ 1. Upstream beginning inventory profit, using the initial value method. ___ 2. Downstream beginning inventory profit, using the initial value method. ___ 3. Upstream ending inventory profit, using the initial value method. ___ 4. Downstream ending inventory profit, using the initial value method. ___ 5. Upstream transfer of depreciable assets, in the period after transfer, where subsidiary recognizes a gain, using the initial value method. ___ 6. Downstream transfer of depreciable assets, in the period after transfer, where parent recognizes a gain, using the initial value method. ___ 7. Upstream transfer of land, in the period after transfer, where subsidiary recognizes a loss, using the initial value method. ___ 8. Downstream transfer of land, in the period after transfer, where parent recognizes a loss, using the initial value method. ___ 9. Eliminate income from subsidiary, recorded under the equity method. ___ 10. Eliminate recorded amortization of acquisition fair value over book value, recorded under the equity method.

Dalton Corp. owned 70% of the outstanding common stock of Shrugs Inc. On January 1, 2009, Dalton acquired a building with a ten-year life for $420,000. No salvage value was anticipated and the building was to be depreciated on the straight-line basis. On January 1, 2011, Dalton sold this building to Shrugs for $392,000. At that time, the building had a remaining life of eight years but still no expected salvage value. In preparing financial statements for 2011, how does this transfer affect the calculation of Dalton's share of consolidated net income?

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

Chain Co. owned all of the voting common stock of Shannon Corp. The corporations' balance sheets dated December 31, 2010, include the following balances for land: for Chain--$416,000, and for Shannon--$256,000. On the original date of acquisition, the book value of Shannon's land was equal to its fair value. On April 4, 2011, Chain sold to Shannon a parcel of land with a book value of $65,000. The selling price was $83,000. There were no other transactions which affected the companies' land accounts during 2010. What is the consolidated balance for land on the 2011 balance sheet?

Stark Company, a 90% owned subsidiary of Parker, Inc., sold land to Parker on May 1, 2010, for $80,000. The land originally cost Stark $85,000. Stark reported net income of $200,000, $180,000, and $220,000 for 2010, 2011, and 2012, respectively. Parker sold the land purchased from Stark in 2010 for $92,000 in 2012. Which of the following will be included in a consolidation entry for 2011?

On January 1, 2010, Smeder Company, an 80% owned subsidiary of Collins, Inc., transferred equipment with a 10-year life (six of which remain with no salvage value) to Collins in exchange for $84,000 cash. At the date of transfer, Smeder's records carried the equipment at a cost of $120,000 less accumulated depreciation of $48,000. Straight-line depreciation is used. Smeder reported net income of $28,000 and $32,000 for 2010 and 2011, respectively. All net income effects of the intra-entity transfer are attributed to the seller for consolidation purposes. For consolidation purposes, what net debit or credit will be made for the year 2010 relating to the accumulated depreciation for the equipment transfer?

Virginia Corp. owned all of the voting common stock of Stateside Co. Both companies use the perpetual inventory method, and Virginia decided to use the partial equity method to account for this investment. During 2010, Virginia made cash sales of $400,000 to Stateside. The gross profit rate was 30% of the selling price. By the end of 2010, Stateside had sold 75% of the goods to outside parties for $420,000 cash. Prepare journal entries for Virginia and Stateside to record the sales/purchases during 2010.