ADVANCED ACCOUNTING
14th Edition
ISBN: 9781260361681
Author: Hoyle
Publisher: MCG
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Chapter 7, Problem 17P
To determine
Concept Introduction:
When a company has two or more subsidiaries, if it maintains a single income statement with all the subsidiaries, then it is called a consolidated income statement. It’s a part of the consolidated financial statement. It is a report that compiles all of a parent company's and subsidiary's actions into one document.
To prepare:
Consolidated income statement of Company B.
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Baxter, Inc., owns 90 percent of Wisconsin, Inc., and 20 percent of Cleveland Company. Wisconsin, in turn, holds 60 percent of Cleveland's outstanding stock. No excess amortization resulted from these acquisitions. During the current year, Cleveland sold a variety of inventory items to Wisconsin for $40,000 although the original cost was $30,000. Of this total, Wisconsin still held $12,000 in inventory (at transfer price) at year-end.
During this same period, Wisconsin sold merchandise to Baxter for $100,000 although the original cost was only $70,000. At year-end, $40,000 of these goods (at the transfer price) was still on hand.
The initial value method was used to record each of these investments. None of the companies holds any other investments.
Using the following separate income statements, determine the figures that would appear on a consolidated income statement:
Baxter
Wisconsin
Cleveland
Sales
$
(1,000,000
)
$
(450,000
)
$
(280,000
)
Cost of goods sold…
On January 1, Year 2, PAT Ltd. acquired 90% of SAT Inc. when SAT's retained earnings were
$1,000,000. There was no acquisition differential. PAT accounts for its investment under the cost
method. SAT sells inventory to PAT on a regular basis at a markup of 30% of selling price. The
intercompany sales were $160,000 in Year 2 and $190,000 in Year 3. The total amount owing by PAT
related to these intercompany sales was $60,000 at the end of Year 2 and $50,000 at the end of Year
3. On January 1, Year 3, the inventory of PAT contained goods purchased from SAT amounting to
$70,000, while the December 31, Year 3, inventory contained goods purchased from SAT amounting to
$80,000. Both companies pay income tax at the rate of 40%.
Selected account balances from the records of PAT and SAT for the year ended December 31, Year 3,
were as follows:
Inventory
Accounts Payable
Retained Earnings, Beg. of Year
Sales
Cost of Sales
Income Tax Expense
PAT
$510,000
700,000
2,500,000
4,100,000
3,200,000…
Acker Inc. bought 40% of Howell Co. on
January 1, 2020 for $576,000. The equity
method of accounting was used. The book
value and fair value of the net assets of
Howell on that date were $1,440,000. Acker
began supplying inventory to Howell as
follows:
YEAR/ COST TO ACKER/ TRANSFER PRICE/
AMOUNT HELD BY HOWELL AT YEAR-END:
2020/ $55,000/ $75,000/ $15,000
2021/ $70,000/ $110,000/ $55,000
Howell reported net income of $100,000 in
2020 and $120,000 in 2021 while paying
$40,000 in dividends each year.
what is the equity in Howell income that
should be reported by Acker in 2021?
options are
$32,000 - $41,600 - $48,000 - $49,600 -
$50,600
Chapter 7 Solutions
ADVANCED ACCOUNTING
Ch. 7 - Prob. 1QCh. 7 - Prob. 2QCh. 7 - Prob. 3QCh. 7 - How does the presence of an indirect ownership...Ch. 7 - Prob. 5QCh. 7 - In accounting for mutual ownerships, what is the...Ch. 7 - Prob. 7QCh. 7 - Prob. 8QCh. 7 - Prob. 9QCh. 7 - Prob. 10Q
Ch. 7 - Prob. 11QCh. 7 - Jones acquires Wilson, in part because the new...Ch. 7 - Prob. 13QCh. 7 - Prob. 1PCh. 7 - Prob. 2PCh. 7 - Prob. 3PCh. 7 - Which of the following is correct for two...Ch. 7 - Prob. 5PCh. 7 - Prob. 6PCh. 7 - Prob. 7PCh. 7 - Prob. 8PCh. 7 - Prob. 9PCh. 7 - Prob. 10PCh. 7 - Prob. 11PCh. 7 - Prob. 13PCh. 7 - Prob. 14PCh. 7 - Prob. 15PCh. 7 - Prob. 16PCh. 7 - Prob. 17PCh. 7 - Prob. 18PCh. 7 - Prob. 19PCh. 7 - Prob. 20PCh. 7 - Prob. 23PCh. 7 - Prob. 24PCh. 7 - Prob. 26P
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