P6-18 Unrealized Profit on Upstream Sales

20X2
Ending
Total = Re-sold + Inventory
Sales 200,000 130,000 70,000
COGS 160,000 104,000 56,000
Gross Profit 40,000 26,000 14,000
Gross Profit % 20.00%

20X3
Ending
Total = Re-sold + Inventory
Sales 175,000 70,000 105,000
COGS 140,000 56,000 84,000
Gross Profit 35,000 14,000 21,000
Gross Profit % 20.00%

20X4
Ending
Total = Re-sold + Inventory
Sales 225,000 105,000 120,000
COGS 180,000 84,000 96,000
Gross Profit 45,000 21,000 24,000
Gross Profit % 20.00%

   20X    20X    20X

2     3     4    

Operating income reported by Parade $150, $240, $300,

000  000  000 
Net income reported by Summer  100,    160,
000  90,00 000 
0 
$250, $330, $460,
000  000  000 
Inventory profit, December 31, 20X2
$70,000 - ($70,000 / 1.25) (14,0 14,00
00) 0 
Inventory profit, December 31, 20X3
$105,000 - ($105,000 / 1.25) (21,0 21,00
00) 0 
Inventory profit, December 31, 20X4
$120,000 - ($120,000 / 1.25)                         (24,
            000)
Consolidated net income $236, $323, $457,
000  000  000 
Income to noncontrolling interest:
($100,000 - $14,000) x 0.40 (34,4
00)
($90,000 + $14,000 - $21,000) x 0.40 (33,2
00)
($160,000 + $21,000 - $24,000) x 0.40                         (62,
            800)
Income to controlling interest $201, $289, $394,
600  800  200 

P6-21 Incomplete Data

a. Increase in fair value of buildings and

equipment:

Consolidated total $  680,000 

Balance reported by Peace (400,000)
Balance reported by Symbol  (240,000)
Increase in value $  40,000 

b. Accumulated depreciation for

consolidated entity:

Accumulated depreciation reported $180,000 

by Peace
Accumulated depreciation reported 110,000 
by Symbol
Cumulative write-off of differential
($5,000 x 6 years)   30,000 
Accumulated depreciation for $320,000 
consolidated entity

c. Amount paid by Peace to acquire

ownership in Symbol:

Common stock outstanding $  60,000 

Retained earnings at acquisition    30,000 
Total book value at acquisition $  90,000 
Increase in value of buildings and     40,000 
equipment
Fair value of net assets acquired $130,000 
Proportion of ownership acquired x 0.75 
Amount paid by Peace $  97,500 

d. Investment in Symbol Company stock reported at

December 31, 20X6:

Symbol's common stock outstanding $  60,000 

December 31, 20X6
Symbol's retained earnings reported   112,000 
December 31, 20X6
 Total book value $172,000 
Proportion of ownership held by x     0.75 
Peace
Peace's share of net book value $129,000 
Unamortized differential ($5,000 x 2    7,500 
years) x 0.75
20X6 Gross Profit Deferral on (3,000)
Upstream Sale *
Investment in Symbol Company $133,500 
stock

* See part f. for Unrealized inventory

profit calculation. Total unrealized is
$4,000 and Peace owns 75% of
Symbol so the total gross profit
deferral in the investment account
would be $3,000 ($4,000 X 75%).

e. Intercorporate sales of inventory in

20X6:

Sales reported by Peace $420,000 

Sales reported by Symbol  260,000 
Total sales $680,000 
Sales reported in consolidated (650,000)
income statement
Intercompany sales during 20X6 $  30,000 

P6-21 (continued)

f. Unrealized inventory profit, December 31, 20X6:

Inventory reported by Peace

Inventory reported by Symbol
Total inventory
Inventory reported in consolidated balance sheet
Unrealized inventory profit, December 31, 20X6

g. Consolidation entry to remove the effects of intercompany inventory

sales during 20X6:

Sales
Cost of Goods Sold
Inventory
The basic entry (not shown) would be adjusted by 4,000 of deferred profit
to complete the elimination process.

h. Unrealized inventory profit at January 1, 20X6:

Cost of goods sold reported by Peace

Cost of goods sold reported by Symbol
Reduction of cost of goods sold for intercompany
 sales during 20X6
Adjusted cost of goods sold
Cost of goods sold reported in consolidated
income statement
Additional adjustment to cost of goods sold
due to unrealized profit in beginning inventory

i. Accounts receivable reported by Peace at December 31, 20X6:

Accounts receivable reported for consolidated entity

Accounts receivable reported by Symbol
Difference
Adjustment for intercompany receivable/payable:
Accounts payable reported by Peace
Accounts payable reported by Symbol
Total reported accounts payable
Accounts payable reported for consolidated
entity
Adjustment for intercompany receivable/payable
Accounts receivable reported by Peace