ADVANCED FINANCIAL ACCOUNTING IA
12th Edition
ISBN: 9781260545081
Author: Christensen
Publisher: MCG
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Chapter 6, Problem 6.4.4E
To determine
Concept Introduction:
Intercompany transactions:
Consolidated financial statements are prepared by a parent company to consolidate the assets and liabilities of the parent and its subsidiaries. There may be some transactions between these companies which are called intercompany transactions.
To choose: the amount of inventory to be reported in the consolidated income statement.
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Assume that Birch made intra-entity inventory transfers to Aspen that have resulted in the following intra-entity gross profits in inventory at the end of each year:
Date
Amount
12/31/19
$13,000
12/31/20
23,300
12/31/21
30,200
On January 1, 2019, Aspen Company acquired 80 percent of Birch Company's voting stock for $500,000. Birch reported a $490,000 book value, and the fair value of the noncontrolling interest was $125,000 on that date. Then, on January 1, 2020, Birch acquired 80 percent of Cedar Company for $224,000 when Cedar had a $253,000 book value and the 20 percent noncontrolling interest was valued at $56,000. In each acquisition, the subsidiary's excess acquisition-date fair over book value was assigned to a trade name with a 30-year remaining life.
These companies report the following financial information. Investment income figures are not included.
2019
2020
2021
Sales:
Aspen Company
$
637,500
$
650,000
$
732,500
Birch…
Lorn Corporation purchased inventory from Dresser Corporation for P 120,000 on September 20, 20x2, and resold 80% of the purchased inventory to unaffiliated companies prior to December 31, 20x2, for P140,000. Dresser produced the inventory sold to Lorn for P75,000. Lorn owns 70% of Dresser’s voting common stock. The companies had no other transactions during 20x2.
What inventory balance will be provided by the consolidated entity on December 31, 20x2?
A. P15, 000
B. P16, 800
C. P24, 000
D. P39, 000
Lorn Corporation purchased inventory from Dresser Corporation for P 120,000 on September 20, 20x2, and resold 80% of the purchased inventory to unaffiliated companies prior to December 31, 20x2, for P140,000. Dresser produced the inventory sold to Lorn for P75,000. Lorn owns 70% of Dresser’s voting common stock. The companies had no other transactionsduring 20x2.
1. What amount of sales will be reported in the 20x2 consolidated income statement?
A. P98,000 C. P140, 000B. P120, 000 D. P260, 000
2. What amount of cost of goods sold will be reported in the 20x2 consolidated income statement?
A. P60,000 C. P96, 000B. P75, 000 D. P120, 000 E. P171, 000
3. What amount of consolidated net income will be assigned to the controlling interest for 20x2?
A. P20,000 D. P45, 000B. P30, 800 E. 69, 200C. P44, 000 F. 80, 000
Chapter 6 Solutions
ADVANCED FINANCIAL ACCOUNTING IA
Ch. 6 - Why must inventory transfers to related companies...Ch. 6 - Why is there a need for a consolidation entry when...Ch. 6 - Prob. 6.3QCh. 6 - How do unrealized intercompany profits on a...Ch. 6 - How do unrealized intercompany profits on an...Ch. 6 - Prob. 6.6QCh. 6 - Prob. 6.9QCh. 6 - Prob. 6.10QCh. 6 - How is the amount of consolidated retained...Ch. 6 - How will the elimination of unrealized...
Ch. 6 - Prob. 6.14QCh. 6 - Is an inventory sale from one subsidiary to...Ch. 6 - Prob. 6.16QCh. 6 - Prob. 6.1.1ECh. 6 - Prob. 6.1.2ECh. 6 - MultipleChoice Questions on Intercompany Inventory...Ch. 6 - MultipleChoice Questions on Intercompany Inventory...Ch. 6 - Prob. 6.1.5ECh. 6 - Prob. 6.1.6ECh. 6 - Prob. 6.3.1ECh. 6 - Prob. 6.3.2ECh. 6 - Prob. 6.3.3ECh. 6 - Prob. 6.4.1ECh. 6 - Prob. 6.4.2ECh. 6 - Prob. 6.4.3ECh. 6 - Prob. 6.4.4ECh. 6 - Prob. 6.5.1ECh. 6 - Prob. 6.5.2ECh. 6 - Prob. 6.5.3E
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