Concept explainers
Tax effects on unrealized intercompany profit:In a taxable transaction, the income tax effects of unrealized intercompany profit eliminations depend on whether the companies within the consolidated entity file a consolidated income tax return or separate tax returns.
When consolidated returns are filed, intercompany transfers are eliminated and only sales outside the consolidated entity both for tax and financial reporting purposes are recognized.
When each company within consolidated entities file separate returns, the profits are taxed individually on the profits of intercompany sales.
The elimination entries for intercompany sale of inventory and land for consolidation worksheet assuming P uses equity method in accounting for its investment in S services.
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Chapter 10 Solutions
ADVANCED FINANCIAL ACCOUNTING IA
- In 20X6, Vines Inc. (Vines) purchased 40% of the common shares of Bottles Inc. (Bottles). At the time, there were no fair value differentials. In 20X7, Vines sold inventory to Bottles for $80,000. $25,000 of this remained at year end. This inventory was sold by Bottles in 20X8. Also during 20X8, Vines sold additional inventory to Bottles for $60,000 of which $30,000 remains in inventory. Vines earns a gross profit of 30% on sales of its inventory. Both companies pay income taxes at 25%. During 20X8, Bottles earned net income of $200,000. What is the amount of equity income reported by Vines in 20X8? A. $79,400 B. $79,550 C. $80,000 D. $80,450arrow_forwardPeel Corporation purchased 60 percent of Split Products Company's shares on December 31, 20X7, for $216,000. At that date, the fair value of the noncontrolling interest was $144,000. On January 1, 20X9, Peel purchased an additional 20 percent of Split's common stock for $97,000. Summarized balance sheets for Split on the dates indicated are as follows: Assets Cash Accounts Receivable Inventory Buildings & Equipment (net) Total Assets Liabilities & Equities Accounts Payable Bonds Payable Common Stock Retained Earnings Total Liabilities & Equities 20X7 $ 49,000 51,000 72,000 370,000 $542,000 December 31 20X8 Balance in investment account $ 79,000 91,000 102,000 350,000 $622,000 20X9 $ 99,000 121,000 162,000 330,000 $712,000 $ 77,000 $127,000 $167,000 105,000 105,000 105,000 155,000 155,000 155,000 205,000 235,000 285,000 $542,000 $622,000 $712,000 Split paid dividends of $22,000 in each of the three years. Peel uses the equity method in accounting for its investment in Split and…arrow_forwardP acquired 70% of S in 20X8. The statements of profit or loss of the two companies for the year ended 31 December 20X9 showed revenues: P $100000 S $70000 During November 20X9, S sold goods to P for $8000. None of these items remained in inventory at the end of year. What is the consolidated revenue for P for the year ended 31 December 20X9?arrow_forward
- Pea acquired 75% of the equity shares of Hion on 31 August 20X9. The statement of profit or loss extracts for the year ended 31 December 20X9 showed: Pea Hion Revenue 240,000 148,800 Cost of sales 60,000 38,400 During the post-acquisition period, sales of $6,000 were made by Pea to Hion. Half of these goods remained in the inventory at the year-end. Pole had made a mark-up on cost of 25% on these sales. What is the group cost of sales for Pea Group for the year ended 31 December 20X9? A. $133,400 B. $132,200 C. $83,400 D. $67,400arrow_forwardListless Co. owns 20% of Weak Inc. and uses the equity method. In 20x1, Weak sells inventory to Listless fro P400,000 with a 60% gross profit on the transaction. The inventory remains unsold during 20x1 and was sold by Listless to external parties only in 20x2. Listless income tax rate is 30%. Weak reports profit of P4,000,000 and P4,800,000 on December 31, 20x1 and 20x2, respectively. How much is the share in the profit of associate in 20x1?arrow_forwardOn January 1, 20X9, Ute Company acquired 70 percent of Cougar Company's common shares at the underlying book value. Ute paid $70,000 for the 70% ownership. Ute uses the equity method in accounting for its ownership of Standard. During the year, Ute sold $200K inventory to Cougar. Ute’s original price on the inventory was $150K. At the end of the year Cougar had $30K in ending inventory. Prepare all the equity and eliminating entries needed as of December 31, 20X9, and complete the attached consolidated worksheet (Please fill out the cells with bolded question marks within the consolidated worksheet as well, if you can not find some of the values to replace the question marks, that is ok, but indicate which specific cell you are answering for the ones you do know, thank you).arrow_forward
- Fromage purchased 80% of the equity shares in Frais on 1 January 20X1. During the year ended 31 December 20X1, Fromage sold inventory to Frais at a sales price of £50,000. None of the goods remained in Frais' inventory. Fromage applied a margin of 20%. Extracts from the statement of profit or loss for the two entities are shown below: Fromage Frais £000 £000 Revenue 1,000 750 Cost of sales (650) (250) What would be the revenue and cost of sales figures reported in the consolidated statement of profit or loss for the year ended 31 December 20X1? Answer to the nearest £000 a. Revenue 1700 Cost of sales 850 O b. Revenue 1750 Cost of sales 910 O c. Revenue 1700 Cost of sales 860 d. None of these options are correct Revenue 1550 Cost of sales 800arrow_forwardOn January 1, 20X1, Rivera Company (RC) and Caventa Company (CC) each acquired 40% of the ordinaryvoting shares of Tulang Company (TC) for P500,000. They then both agreed to share control of TC.In 20X1, RC purchased goods from TC for P150,000. On December 31, 20X1, P80,000 of the goods purchasedremains in TC’s inventory. TC sells goods at 25% mark-up based on the sale.For the year ended December 31, 20X1, TC reported a profit of P400,000 and declared and paid dividends ofP150,0000. Also, the fair value of each venturer’s investment in TC is P600,000. There is no published quotationfor TC.RC and CC account for jointly controlled entities using the equity method.Required: Determine the following:1. The amount of income RC should recognize from TC.2. The value of RC’s investment in TC at December 31, 20X1.3. The amount of income CC should recognize from TC.4. The value of CC’s investment in TC at December 31, 20X1.arrow_forwardBisharp Corporation owns 80% of Rufflet, Inc. common stock. During 20A, Bisharp sold to Rufflet inventory of P250,000 on the same terms as sales made to third parties. Rufflet sold all of the inventory purchased from Bisharp in 20A. The following information pertains to Bisharp and Rufflet's sales for 20A, respectively: Sales P1,000,000 and P700,000; Cost of merchandise sold P400,000 and P350,000. What amount should Bisharp report as cost of merchandise sold in its 20A consolidated income statement?arrow_forward
- At the beginning of current year, Small company purchased 25% of Big Company. No "excess" resulted from the purchase. Small company appropriately carried this investment at equity and the carrying amount of the investment was P1,900,000 at year-end. Big company reported net income of P1,200,000 for the current year and paid cash dividend of P480,000 at year-end. What amount did Small Company pay for the 25% interest in Big Company?arrow_forwardAA Corporation holds 80 percent of the stock of Movie Production Inc. During 20x9, AA purchased an inventory of snack bar items for P40,000 and resold P30,000 to MM Productions for P48,000. MM Productions Inc. reported sales of P67,000 in 20x9 and had inventory of P16,000 on December 31, 20x9. The companies held no beginning inventory and had no other transactions in 20x9. What amount of net income will be reported in the 20x9 consolidated income statement?arrow_forwardAt the start of the current year, SBC Corp. purchased 30% of Sky Tech Inc. for $51 million. At the time of purchase, the carrying value of Sky Tech's net assets was $80 million. The fair value of Sky Tech's depreciable assets was $20 million in excess of their book value. For this year, Sky Tech reported a net income of $80 million and declared and paid $20 million in dividends. The total amount of additional depreciation to be recognized by SBC over the remaining life of the assets is: Multiple Choice O $6.0 million. $20 million. $30 million. None of these answer choices are correct.arrow_forward
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