PROBLEM I - UPSTREAM AND DOWNSTREAM SALES OF INVENTORY AND FIXED ASSETS On January 1, 2014, P Company acquired 75% of the outstanding shares of S Company at book value. P Company account for its investment under cost method. Statement of comprehensive income for the two companies for the year 2016 are as follows: P Company S Company Sales Cost of sales Gross margin Expenses Operating income before taxes Other income Dividend income January 1, 2016 December 31, 2016 400,000 (280,000) 120,000 P Company (48,000) 72,000 96,000 60,000 228,000 12,000 240,000 Net income Other comprehensive income Comprehensive income The non-controlling interest in the December 31, 2015 consolidated balance sheet is $32,000. Company P and S have only one equity investment. 120,000 100,000 192,000 (134,400) 57,600 (23,040) 34,560 84,000 6,000 REQUIRED: CASE A During 2016, P Company purchased merchandise from S Company in the amount of P80,000, at billed prices. S Company sold this merchandise at 25% above its cost. The inventories of P Company included merchandise at billed prices from S Company. The inventories of the P and S Company are as follows: 124,560 12,000 136,560 S Company 132,000 110,000

PROBLEM I - UPSTREAM AND DOWNSTREAM SALES OF INVENTORY AND FIXED ASSETS On January 1, 2014, P Company acquired 75% of the outstanding shares of S Company at book value. P Company account for its investment under cost method. Statement of comprehensive income for the two companies for the year 2016 are as follows: P Company S Company Sales Cost of sales Gross margin Expenses Operating income before taxes Other income Dividend income January 1, 2016 December 31, 2016 400,000 (280,000) 120,000 P Company (48,000) 72,000 96,000 60,000 228,000 12,000 240,000 Net income Other comprehensive income Comprehensive income The non-controlling interest in the December 31, 2015 consolidated balance sheet is $32,000. Company P and S have only one equity investment. 120,000 100,000 192,000 (134,400) 57,600 (23,040) 34,560 84,000 6,000 REQUIRED: CASE A During 2016, P Company purchased merchandise from S Company in the amount of P80,000, at billed prices. S Company sold this merchandise at 25% above its cost. The inventories of P Company included merchandise at billed prices from S Company. The inventories of the P and S Company are as follows: 124,560 12,000 136,560 S Company 132,000 110,000

Financial Accounting Intro Concepts Meth/Uses

14th Edition

ISBN:9781285595047

Author:Weil

Publisher:Weil

Chapter14: Intercorporate Investments In Common Stock

Section: Chapter Questions

Problem 28P

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