b. Repeat part a assuming that all of the above unconfirmed intercompany profits arose from downstream sales. Enter answers using all zeros (do not abbreviate answers to millions or thousands). Description Debit To eliminate intercompany profit from sale of land. To eliminate Intercompany profit in beginning inventory. To eliminate intercompany sales and purchases. To eliminate intercompany profit in ending Inventory. Accumulated depreciation + ⇓⇓ 4 ♦ 4 ♦ O A 0 0 0 0 0 0 0 0 OOC 0 0 0 Credit 0 0 0 OO 0 0 0 OOC 0
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- Pre-consolidation bookkeeping, upstream intercompany sales, profits in ending inventory - Cost method Assume a parent company owns a 100% controlling interest in its long-held subsidiary. The following excerpts are from the parent’s and subsidiary’s “stand alone” pre-consolidation income statements for the year ending December 31, 2019, prior to any investment bookkeeping or intercompany adjustments: Parent Subsidiary Revenues $4,000,000 $2,500,000 Cost of goods sold (2,800,000) (1,500,000) Gross profit 1,200,000 1,000,000 Selling general & administrative expenses (780,000) (606,000) Net income $420,000 $394,000 On January 1, 2019, neither company held any inventories purchased from the other affiliate. All of the sales made by either company have the same gross margin regardless of whether they are made to affiliates or non-affiliates. The subsidiary declared and paid $200,000 of dividends during 2019. Assume during the year ended December 31, 2019, the subsidiary sold…Intercompany Transactions Facts: Sub Co is a 90% owned subsidiary of Parent Co, acquired for $94,500 cash on July 1, 2016, when Sub’s net assets consisted of $100,000 capital stock and $5,000 retained earnings. The cost of Parent Co.’s 90% interest in Sun was equal to book value and fair value of the interest acquired. Parent Co sells inventory items to Sub Co on a regular basis, and the intercompany transaction data for 2019 are as follows: Sales to Sub Co in 2019 (cost $15,000), selling price $20,000 Unrealized profit in Sub Co.'s inventory at December 31, 2018 (inventory was sold during 2019) 2,000 Unrealized profit in Sub Co.'s inventory at December 31, 2019 2,500 Sub Co.'s accounts payable to Parent Co at December 31, 2019 10,000 At December 31, 2018, Parent Co.'s investment in subsidiary account had a balance of $128,500. This balance consisted of Parent Co's 90% equity in Sub's $145,000 net…Deferred intercompany inventory profits Assume on May 15, 2019, a parent company purchased a 75% interest in a subsidiary’s voting common stock. During the year ended December 31, 2022, the subsidiary sold merchandise to the parent for $972,000 Before consolidation, the parent and subsidiary earn the same profits on intercompany sales as they earn on sales to unaffiliated customers. The parent’s gross profit percentage is 35% and the subsidiary’s is 30%. On December 31, 2022, 40% of this merchandise was in the parent’s ending inventory. What amount of intercompany profit in ending inventory must be deferred in preparation of the December 31, 2022 consolidated financial statements? Select one: a. $388,800 b. $116,640 c. $87,480 d. $136,080
- Pre-consolidation bookkeeping, downstream intercompany sales, profits in ending inventory-Equity method Assume a parent company owns a 100% controlling interest in its long-held subsidiary. The following excerpts are from the parent's and subsidiary's "stand alone" pre-consolidation income statements for the year ending December 31, 2013, prior to any investment bookkeeping or intercompany adjustments: Parent Subsidiary Revenues $4,200,000 $2,850,000 Cost of goods sold (2,730,000) (1,710,000) Gross profit 1,470,000 1,140,000 Selling general & administrative expenses (975,000) (757,500) Net income $495,000 $382,500 On January 1, 2013, neither company held any inventories purchased from the other affiliate. All of the sales made by either company have the same gross margin regardless of whether they are made to affiliates or non-affiliates. Assume that during the year ended December 31, 2013, the parent sold to the subsidiary $250,000 of merchandise. At December 31, 2013, the…10 Company A acquired 100% of Company B on January 1 2018 at a premium to book value and wants to prepare a consolidated balance sheet for the combined entity as of December 31, 2018 The financial statements for each individual entity are for the period ending December 31, 2018. Balance Sheet Company A Company B Sales 400,000 250,000 Cost of Goods Sold (150,000) (100,000) Depreciation (30,000) (25,000) Net Income 220,000 125,000 Statement of Retained Earnings Beginning Balance 230,000 100,000 Net Income 220,000 125,000 Ending Balance 450,000 225,000 Balance Sheet Totals Cash 20,000 40,000 Accounts Receivable 30,000 25,000 Inventory 60,000 60,000…On January 2, 2021, Power Company acquired 90% of the outstanding shares of Solar Inc. at book value. During 2021 and 2022, intercompany sales amounted to P2,000,000 and P4,000,000, respectively. Power Company consistently recognized a 25% mark-up based on cost while Solar Inc. had a 25% gross profit on sales. The inventories of the buying affiliate, which all came from inter-company transactions show: December 31, 2021 December 31, 2022 Power P240,000 P160,000 Solar 100,000 40,000 On October 1, 2021, Solar Inc. purchased a piece of land costing P1,000,000 from Power Company for P1,500,000. On December 1, 2022, Solar Inc. sold this land to unrelated party for P1,500,000. On the other hand, on July 1, 2022, Solar Inc. sold a used photo-copier with a carrying value of P60,000 and remaining life of 3 years to…
- Illustration 1. Share-for-share exchanges On January 1, 2022, Frank Co. and Richard, Inc. combined. As of this date, the fair values of the assets, liabilities and equity of Frank and Richard before the business combination are as follows: On the negotiation for the business combination, the acquirer incurred the following transaction costs: P45,000.00 for legal fees; P 5,000.00 for due diligence cost and P 80,000.00 for the general admin cost and cost of maintaining an internal acquisition department. Case 1: before the transaction, Frank, Co. have 7,000 outstanding shares. Frank Co. Issued additional 10,000 shares as consideration for a 100% interest in Richard. Frank’s shares currently sells P150 per share in the market, while Richard’s shares are quoted at P200 per share. With the stated facts, answer the following: 1.How much is the Share Premium of the combined company after the business combination?a. P 730,000.00b. P 1,230,000.00c. P 800,000.00d. P 1,700,000.002.How much is…Intercompany Transaction ABC Corp. Acquired a 70% interest in GHI Corp on January 2, 2021 for P936,000 when GHI’s net assets had a book value and fair value of P1,580,000. During 2021, ABC sold inventory items that cost P1,560,000 to GHI for P2,080,000 and GHI’s inventory at December 31, 2021 included 1/2 of the merchandise. GHI also sold to ABC an inventory for P30,000 with a cost of P25,000, 70% were sold to unaffiliated customers. ABC Corp. Reported separate income from its own operation of P1,170,000 and GHI reported a net loss of P390,000. Compute for the consolidated net income.Consolidation spreadsheet for continuous sale of inventory - Equity methodAssume that a parent company acquired a subsidiary on January 1, 2013. The purchase price was $500,000 million in excess of the subsidiary’s book value of Stockholders’ Equity on the acquisition date, and that excess was assigned to the following AAP assets: AAP Asset OriginalAmount Original UsefulLife (years) Property, plant and equipment (PPE), net $100,000 20 Customer list 175,000 10 Royalty agreement 125,000 10 Goodwill 100,000 indefinite $500,000 The AAP assets with a definite useful life have been amortized as part of the parent’s equity method accounting. The Goodwill asset has been tested annually for impairment, and has not been found to be impaired. Assume that the parent company sells inventory to its wholly owned subsidiary. The subsidiary, ultimately, sells the inventory to customers outside of the consolidated group. You have compiled the following data for the years ending…
- Review of pre-consolidation cost method (controlling investment in affiliate, fair value equals book value) Assume an investee has the following financial statement information for the three years ending December 31, 2019: (At December 31) 2019 2018 2017 Current assets $285,000 $277,500 $207,000 Tangible fixed assets 662,500 575,000 563,000 Intangible assets 40,000 45,000 50,000 Total assets $987,500 $897,500 $820,000 Current liabilities $120,000 $110,000 $100,000 Noncurrent liabilities 266,250 242,500 220,000 Common stock 100,000 100,000 100,000 Additional paid-in capital 100,000 100,000 100,000 Retained earnings 400,000 345,000 300,000 Stockholders' equity 600,000 545,000 500,000 Total liabilities and equity $986,250 $897,500 $820,000 (For the years ended December 31) 2019 2018 2017 Revenues $970,000 $920,000 $850,000 Expenses 875,000 840,000 775,000 Net income $95,000 $80,000 $75,000 Dividends $40,000 $35,000 $25,000 Assume that…PROBLEM ON INTERCOMPANY SALES Timmy Co. acquired 80% interest in Princess Bubblegum Company on January 2, 2018 for $2,520,000. On this date, the share capital and retained earnings of the two companies are: Timmy Co. Princess Bubblegum Co. Share Capital $6,000,000 $2,250,000 Retained Earnings 3,000,000 450,000 On January 2, 2018: the assets and liabilities of Princess Bubblegum Co. were stated at their fair values except for machinery (remaining life 3 years) which is $225,000 lower than its fair value. On September 30, 2018: Princess Bubblegum sold merchandise to Timmy Co. at an inter-company profit of $150,000; 25% was still unsold at year-end. On October 1, 2019: Princess Bubblegum purchased merchandise from Timmy for $3,600,000. The selling affiliate included a 20% mark-up cost on this date. Only 75% of these purchases had been sold to unrelated parties as of December 31, 2019. As of December 31, 2019, goodwill was determined to be impaired by $60,000. The…Volley corporation owns an 80% interest in Basket corporation acquired several years ago. Basket regularly sells merchandise to experience at 125% of studies cost. Gross profit data for Volley and Basket for the year 2019 are shown in the image. During 2019 Volley purchased inventory items from Basket and a transfer price of 400,000. Volley December 31 2018 and 2019 inventory include goods acquired from Basket of 100,000 and 125,000 respectively. The consolidated sales of Volley corporation and subsidiary for 2019 were: a. 1,800,000 b.1,425,000 c.1,400,000 d.1,240,000 Using the same information, the unrealized profits in the year end 2018 and 2019 inventories were: a. 100K and 125K respectively. b. 800K and 100K respectively. c. 20K and 25K respectively. d. 16K and 20K respectively Using the same information in no.5, the consolidated cost of goods sold of Volley and subsidiary for 2019 was: a. 1,024,000 b. 1,045,000 c. 1,052,800 d. 1,056,000