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Perez Inc. owns 80 percent of Senior Inc.

During 20X2, Perez sold goods with a 40


percent gross profit to Senior. Senior sold all of these goods in 20X2. For 20X2
consolidated financial statements, how should the summation of Perez and Senior
income statement items be adjusted?

Sales and Cost of Goods Sold should be reduced by the intercompany sales amount.

Parker Corporation owns 80 percent of Smith Inc.'s common stock. During 20X1,
Parker sold inventory to Smith for $250,000 on the same terms as sales made to
third parties. Smith sold all of the inventory purchased from Parker in 20X1. The
following information pertains to Smith's and Parker's sales for 20X1:

Parker Smith
Sales $1,000,000 $ 700,000
Cost of Sales (400,000) (350,000)
Gross Profit $ 600,000 $ 350,000

What amount should Parker report as cost of sales in its 20X1 consolidated income
statement?

500,000

400 + 350 - 250

Nolan owns 100 percent of the capital stock of both Twill Corporation and Webb
Corporation. Twill purchases merchandise inventory from Webb at 140 percent of
Webb's cost. During 20X0, Webb sold merchandise that had cost it $40,000 to Twill.
Twill sold all of this merchandise to unrelated customers for $81,200 during 20X0. In
preparing combined financial statements for 20X0, Nolan's bookkeeper disregarded
the common ownership of Twill and Webb.

What amount should be eliminated from cost of goods sold in the combined income
statement for 20X0

$56,000 = ($40,000 *1.4)


Nolan owns 100 percent of the capital stock of both Twill Corporation and Webb
Corporation. Twill purchases merchandise inventory from Webb at 140 percent of
Webb's cost. During 20X0, Webb sold merchandise that had cost it $40,000 to Twill.
Twill sold all of this merchandise to unrelated customers for $81,200 during 20X0. In
preparing combined financial statements for 20X0, Nolan's bookkeeper disregarded
the common ownership of Twill and Webb.

By what amount was unadjusted revenue overstated in the combined income


statement for 20X0?

$56,000. The revenue would be overstated by the amount of cost of goods sold that should
have been eliminated

Clark Company had the following transactions with affiliated parties during 20X2:

• Sales of $60,000 to Dean Inc., with $20,000 gross profit. Dean had $15,000 of this
inventory on hand at year-end. Clark owns a 15 percent interest in Dean and does
not exert significant influence.

• Purchases of raw materials totaling $240,000 from Kent Corporation, a wholly


owned subsidiary. Kent's gross profit on the sales was $48,000. Clark had $60,000 of
this inventory remaining on December 31, 20X2.

B efore elimination entries, Clark had consolidated current assets of $320,000. What
amount should Clark report in its December 31, 20X2, consolidated balance sheet for
current assets?

Net assets reported $320,000


Profit on intercompany sale $48,000 Proportion of inventory unsold at year end ($60,000 /
$240,000) x 0.25
Unrealized profit at year end (12,000)

Amount reported in consolidated statements $308,000


Selected data for two subsidiaries of Dunn Corporation taken from the December 31,
20X8, preclosing trial balances are as follows:
Banks Co. (Debits)
Lamm Co. (Credits)
Shipments to Banks $ ($150,000)
Shipments from Lamm 200,000
Intercompany Inventory Profit on Total Shipments (50,000)

Additional data relating to the December 31, 20X8, inventory are as follows:
Inventory acquired by Banks from outside parties $175,000 Inventory acquired by
Lamm from outside parties 250,000 Inventory acquired by Banks from Lamm
60,000

At December 31, 20X8, the inventory reported on the combined balance sheet of the
two subsidiaries should be

Inventory reported by Banks ($175,000 + $60,000) $235,000


Inventory reported by Lamm 250,000
Total inventory reported $485,000
Unrealized profit at year end
[$50,000 x ($60,000 / $200,000)] (15,000)

Amount reported in consolidated statements $470,000

Blue Company purchased 60 percent ownership of Kelly Corporation in 20X1. On May


10, 20X2, Kelly purchased inventory from Blue for $60,000. Kelly sold all of the
inventory to an unaffiliated company for $86,000 on November 10, 20X2. Blue
produced the inventory sold to Kelly for $47,000. The companies had no other
transactions during 20X2.

What amount of sales will be reported in the 20X2 consolidated income statement?
$86,000.

only sales recorded are sales to nonaffiliates

Blue Company purchased 60 percent ownership of Kelly Corporation in 20X1. On May


10, 20X2, Kelly purchased inventory from Blue for $60,000. Kelly sold all of the
inventory to an unaffiliated company for $86,000 on November 10, 20X2. Blue
produced the inventory sold to Kelly for $47,000. The companies had no other
transactions during 20X2.

What amount of cost of goods sold will be reported in the 20X2 consolidated income
statement?

$47,000

Blue Company purchased 60 percent ownership of Kelly Corporation in 20X1. On May


10, 20X2, Kelly purchased inventory from Blue for $60,000. Kelly sold all of the
inventory to an unaffiliated company for $86,000 on November 10, 20X2. Blue
produced the inventory sold to Kelly for $47,000. The companies had no other
transactions during 20X2.

What amount of consolidated net income will be assigned to the controlling


shareholders for 20X2?

Total income ($86,000 - $47,000) $39,000 Income assigned to noncontrolling interest


[0.40($86,000 - $60,000)] (10,400)

Consolidated net income assigned to controlling interest $28,600

Lorn Corporation purchased inventory from Dresser Corporation for $120,000 on


September 20, 20X1, and resold 80 percent of the inventory to unaffiliated
companies prior to December 31, 20X1, for $140,000. Dresser produced the
inventory sold to Lorn for $75,000. Lorn owns 70 percent of Dresser's voting common
stock. The companies had no other transactions during 20X1.
What amount of sales will be reported in the 20X1 consolidated income statement?

$140,000

Lorn Corporation purchased inventory from Dresser Corporation for $120,000 on


September 20, 20X1, and resold 80 percent of the inventory to unaffiliated
companies prior to December 31, 20X1, for $140,000. Dresser produced the
inventory sold to Lorn for $75,000. Lorn owns 70 percent of Dresser's voting common
stock. The companies had no other transactions during 20X1.

What amount of cost of goods sold will be reported in the 20X1 consolidated income
statement

Amount paid by Lorn Corporation $120,000 Unrealized profit (45,000)


Actual cost $ 75,000
Portion sold x 0.80

Cost of goods sold $ 60,000

Lorn Corporation purchased inventory from Dresser Corporation for $120,000 on


September 20, 20X1, and resold 80 percent of the inventory to unaffiliated
companies prior to December 31, 20X1, for $140,000. Dresser produced the
inventory sold to Lorn for $75,000. Lorn owns 70 percent of Dresser's voting common
stock. The companies had no other transactions during 20X1

What amount of consolidated net income will be assigned to the controlling interest for
20X1?

Consolidated sales $140,000


Cost of goods sold (60,000)
Consolidated net income $ 80,000

Income to Dresser's noncontrolling interest:


Sales $120,000
Reported cost of sales (75,000)
Report income $ 45,000
Portion realized x 0.80
Realized net income $ 36,000
Portion to Noncontrolling
Interest x 0.30
Income to noncontrolling Interest
(10,800)

Income to controlling interest $ 69,200

Lorn Corporation purchased inventory from Dresser Corporation for $120,000 on


September 20, 20X1, and resold 80 percent of the inventory to unaffiliated
companies prior to December 31, 20X1, for $140,000. Dresser produced the
inventory sold to Lorn for $75,000. Lorn owns 70 percent of Dresser's voting common
stock. The companies had no other transactions during 20X1

What inventory balance will be reported by the consolidated entity on December 31,
20X1?

Inventory reported by Lorn $ 24,000 Unrealized profit ($45,000 x .20) (9,000) Ending
inventory reported $ 15,000