Following are several figures reported for Allister and Barone as of December 31, 2018:

Allister Barone
Inventory 500,000 300,000
Sales 1,000,000 800,000
Investment income not given
Cost of goods sold 500,000 400,000
Operating expenses 230,000 300,000

Allister acquired 90 percent of Barone in January 2017. In allocating the newly acquired subsidiary's fair value at the acquisitio

Determine balances for the following items that would appear on Allister's consolidated financial statements for 2018:

Amounts
Inventory 795,000 Add the two book values and subtract the endind intra-e
Sales 1,620,000 Add the two book values and subtract the $180,000 intr
Cost of goods sold 725,000 Add the two book values and subtract the intra-entity tr
operating expenses 549,500 Add the two book values and the amortizaiton expense f
net income attributable to noncontrolling interest 7,550

Customer List amortization = 78,000 : 4 years = 19,500 per year

Intra-entity gross profit (180,000 - 130,000) 50,000
Inventory remaining at year end 10%
Intra-entity gross profit in ending inventory, 12/31 5,000

Barone's net income 100,000

Intra-entity gross profit deferral (5,000)
Excess fair value amortization (19,500)
Adjusted subsidiary net income 75,500
Noncontrolling interest percentage 10%
Net Income attributable to noncontrolling interst 7,550

Gross profit deferral is allocated to the noncontrolling interest because the transfer was upstream from Barone to Allister.
iary's fair value at the acquisition date, Allister noted that Barone had developed a customer list worth $78,000 that was unrecorded on it

cial statements for 2018:

s and subtract the endind intra-entity gross profit of $5,000

s and subtract the $180,000 intra-entity transfer
s and subtract the intra-entity transfer and add (to defer) ending inventory intra-entity gross profit
s and the amortizaiton expense for the period

eam from Barone to Allister.

000 that was unrecorded on its accounting records and had a 4-year remaining life. Any remaining excess fair value over Barone's book val
r value over Barone's book value was attributed to goodwill. During 2018, Barone sells inventory costing $130,000 to Allister for $180,000.
0,000 to Allister for $180,000. Of this amount, 10 percent remains unsold in Allister's warehouse at year-end.
 Protrade Corporation acquired 80 percent of the outstanding voting stock of Seacraft Company on January 1, 2017, for $

The following selected account balances are from the individual financial records of these two companies as of Decembe

Protrade Seacraft
Sales 880,000 600,000
Cost of goods sold 410,000 317,000
Operating expenses 174,000 129,000
Retained earnings, 1/1/18 980,000 420,000
Inventory 370,000 144,000
Buildings (net) 382,000 181,000
Investment income Not given 0

Each of the following problems is an independent situation

a. Assume that Protrade sells Seacraft inventory at a markup equal to 60 percent of cost. Intra-entity transfers were $114,0
Determine balances for the following items that would appear on consolidated financial statements for 2018:

b. Assume that Seacraft sells inventory to Protrade at a markup equal to 60 percent of cost. Intra-entity transfers were $74,
Determine balances for the following items that would appear on consolidated financial statements for 2018:

c. Protrade sells Seacraft a building on January 1, 2017, for $128,000, although its book value was only $74,000 on this date
Determine balances for the following items that would appear on consolidated financial statements for 2018:

a. cost of goods sold 598,250 .60/1+.60=.6/1.6=.375

inventory 489,250 19,500.00
net income attributable to noncontrolling interest 30,800 24,750.00

410,000 Inv
317,000
(134,000)
(19,500)
24,750
598,250
b. cost of goods sold 628,250 0.375
inventory 491,875 16,875
net income attributable to noncontrolling interest 29,750 22,125

727,000 inv
(104,000)
(16,875)
22,125
628,250
c.

128,000 74,000
5 5
25,600 14,800

buildings (net) 530,600 build 382,000

operating expenses 292,200 nci 600,000
net income attributable to noncontrolling interest 30,800 181,000
cogs -317,000
-54,000
129,000
2017 10,800
net income 154,000
2018 10,800
530,600

https://www.coursehero.com/file/38534363/4000-ch5-hwdocx/

Explanation
a. Consolidated cost of goods sold
b. Consolidation cost of goods sold
c. Consolidated buildings net:
Company on January 1, 2017, for $612,000 in cash and other consideration. At the acquisition date, Protrade assessed Seacraft's identifiab

ese two companies as of December 31, 2018:

Intra-entity transfers were $114,000 in 2017 and $134,000 in 2018. Of this inventory, Seacraft retained and then sold $52,000 of the 2017
al statements for 2018:

st. Intra-entity transfers were $74,000 in 2017 and $104,000 in 2018. Of this inventory, $45,000 of the 2017 transfers were retained and t
al statements for 2018:

alue was only $74,000 on this date. The building had a five-year remaining life and was to be depreciated using the straight-line method w
al statements for 2018:

0/1+.60=.6/1.6=.375 0.375 0.375

514,000 NetInc 600,000 sales

(24,750) (317,000) cogs
489,250 (129,000) op exp
154,000
20%
30,800

370,000 NetInc 600,000

144,000 (317,000)
-22,125 (129,000)
491,875 154,000
16,875
 -22,125
148,750
20%
29,750

10,800

NetInc 174,000 opexp

129,000 opexp
(10,800)
292,200
20%
ade assessed Seacraft's identifiable assets and liabilities at a collective net fair value of $765,000 and the fair value of the 20 percent nonc

and then sold $52,000 of the 2017 transfers in 2018 and held $66,000 of the 2018 transfers until 2019.

017 transfers were retained and then sold by Protrade in 2018, whereas $59,000 of the 2018 transfers were held until 2019.

d using the straight-line method with no salvage value.

r value of the 20 percent noncontrolling interest was $153,000. No excess fair value over book value amortization accompanied the acquis

held until 2019.

ation accompanied the acquisition.
Protrade Corporation acquired 80 percent of the outs
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Question:
Protrade Corporation acquired 80 percent of the outstanding voting stock of Seacraft Company on January 1,2017,
Protrade
Sales $880,000
Cost of goods sold 410,000
Operating expenses 174,000
Retained earnings, 1/1/18 980,000
Inventory 370,000
Buildings (net) 382,000
Investment income not given
The following selected account balances are from the individual financial records of these two companies as of Dece
Each of the following problems is an independent situation:
a. Assume that Protrade sells Seacraft inventory at a markup equal to 60 percent of cost. Intra-entity transfers were
b. Assume that Seacraft sells inventory to Protrade at a morkup equal to 60 percent of cost Intra-entity transfers wer
c. Protrade sells Seacraft a building on January 1, 2017, for $128,000. although its book value was only $74,000 on
a. Cost of goods sold _____
Inventory _____
Net income attribute to noncontrolling
_____
interest
b. Cost of goods sold _____
Inventory _____
Net income attribute to noncontrolling
_____
interest
c. Buildings (net) _____
Operating expenses _____
Net income attributable to noncontrolling
_____
interest

IConsolidated Financial Statements

Consolidated financial statements of a parent and subsidiary is adjusted through an elimination entry done only in th

Answer and Explanation:

Answer (a)
When parent sells to subsidiary, the transfer is a downstream sale.
1. The consolidated Cost of Goods Sold (COGS) is the Total Cost of Goods Sold of parent and subsidiary less the in
Consolidated COGS = Parent COGS + Subsidiary COGS - Intra-entity Transfer - Realized Profit + Unrealized Profit
The problem said that Protrade charges Seacraft 160% of cost. The mark-up on beginning inventory related to the tr
Realized Profit = $52,000 / 160% x 60% or $52,000 - ($52,000 / 160%) = $19,500
Unrealized Profit = $66,000 / 160% x 60% or $66,000 - ($66,000 / 160%) = $24,750
Now, we have all the amounts needed to compute for the consolidated COGS:
* Consolidated COGS = $410,000 + $317,000 - $134,000 - $19,500 + $24,750 = $498,250
2. Inventory will be adjusted by the amount of mark-up on the unsold intra-entity transfer.
Mark-up on unsold inventory = $66,000 - ($66,000 / 160%) = $24,750
Consolidated Inventory = $370,000 + ($134,000 - $24,750) = $479,250
3. The noncontrolling interest (NCI) gets only its share in the adjusted net income of the subsidiary. Since the sale is
Net Income of Seacraft = $600,000 - $317,000 - $129,000 = $154,000
* Share of NCI = $154,000 x 20% = $30,800
Answer (b)
When subsidiary sells to parent, the intra-entity transfer is an upstream sale.
1
Realized Profit = $45,000 - ($45,000 / 160%) = $16,875
Unrealized Profit = $59,000 - ($59,000 / 160%) = $22,125
* Consolidated COGS = $410,000 + $317,000 - $104,000 - $16,875 + $22,125 = $628,250
2. Inventory will be adjusted by the amount of mark-up on the unsold intra-entity transfer. The sale is upstream so th
Mark-up on unsold inventory = $59,000 - ($59,000 / 160%) = $22,125
Consolidated Inventory = ($370,000 - $22,125) + $134,000 = $481,875
3. Since the sale is upstream, the net income of Seacraft will be adjusted by the amount of realized and unrealized p
Net Income of Seacraft = ($600,000 - $104,000) - ($317,000 - $104,000) - $129,000 + $16,875 - $22,125 = $148,75
Share of NCI = $148,750 x 20% = $29,750
Answer (c)
The sale is a downstream sale of a fixed asset.
1. The transfer of building from parent to subsidiary resulted to derecognition of parent of the building and the recog
Overstatement in building = $128,000 - $74,000 = $54,000
Consolidated Building = $382,000 + ($181,000 - $54,000) = $509,000
2. The sale happened in 2017. The parent's net income in 2017 was overstated by $54,000 ($128,000 - $74,000) an
Depreciation by Seacraft = $128,000 / 5 years = $25,600
Correct Depreciation = $74,000 / 5 years = $14,800
Overstatement = $25,600 - $14,800 = $10,800
If depreciation expense of Seacraft is overstated, then the reported operating expense is also overstated.
* Adjusted Operating Expense = $129,000 - $10,800 = $118,200
3. If Operating Expense is overstated, the net income is understated.
Net Income = $600 - $317,000 - $118,200 = $164,800
* Share of NCI = $164,800 x 20% = $32,960
a. Cost of goods sold $598,250
Inventory $479,250
Net income attributable to noncontrolling
$30,800
interest

b. Cost of goods sold $628,250

Inventory $481,875
Net income attributable to noncontrolling
$29,750
interest

c. Building $509,000
Operating Expense $118,200
Net income attributable to noncontrolling
$32,960
interest
80 percent of the outstanding voting stock of Seacraft Com

ock of Seacraft Company on January 1,2017, for $500,000 in cash and other consideration. At the acquisition date, Protrade as
Seacraft
$600,000
317,000
129,000
420,000
134,000
181,000
0
cial records of these two companies as of December 3 2018.

60 percent of cost. Intra-entity transfers were $114,000 in 2017 and $134,000 in 2018. Of this inventory, Seacraft retained and
to 60 percent of cost Intra-entity transfers were $74,000 in 2017 and $104,000 in 2018. Of this inventory, $45,000 of the 2017
. although its book value was only $74,000 on this date. The building had a five-year remaining life and was to be depreciated u

ed through an elimination entry done only in the worksheet. Eliminating entries includes the elimination of investment in subsidia

Goods Sold of parent and subsidiary less the intra-entity transfer for the period less the realized profit (beginning inventory of th
y Transfer - Realized Profit + Unrealized Profit
mark-up on beginning inventory related to the transfer is realized in 2018 and the mark-up on ending inventory remained unreali
%) = $19,500
0%) = $24,750

+ $24,750 = $498,250
ntra-entity transfer.

net income of the subsidiary. Since the sale is downstream, the net income of Seacraft is correctly stated.

+ $22,125 = $628,250
ntra-entity transfer. The sale is upstream so this time, the parent's inventory is adjusted.

ted by the amount of realized and unrealized profit (refer to number 1 in answer b) because income is considered earned once
00) - $129,000 + $16,875 - $22,125 = $148,750

gnition of parent of the building and the recognition of subsidiary of the building in the amount of $128,000. But the building sho

verstated by $54,000 ($128,000 - $74,000) and subsidiary's depreciation expense is overstated by $10,800 every year for the n

perating expense is also overstated.

 f Seacraft Company on...

e acquisition date, Protrade assessed Seacraft's identifiable assets and liabilities at a collective net fair value of $765,000 and t

ventory, Seacraft retained and then sold $52,000 of the 2017 transfers in 2018 and held $66,000 of the 2018 transfers until 201
nventory, $45,000 of the 2017 transfers were retained and then sold by Protrade in 2018, whereas $59,000 of the 2018 transfer
e and was to be depreciated using the straight-line method with no salvage value. Determine balances the following items that

nation of investment in subsidiary account and the equity of subsidiary, adjusting the assets and liabilities of subsidiary to their f

rofit (beginning inventory of the intra-entity transfer) and plus the unrealized profit (ending inventory of intra-entity transfer).

ng inventory remained unrealized in 2018.

me is considered earned once the inventory is sold to outside parties. The Sales and COGS are both reduced by the amount of

$128,000. But the building should be recorded in the consolidated balance sheet for its original cost which is $74,000. Any gain

by $10,800 every year for the next 5 years starting January 1, 2017. In the consolidated balance sheet, the building's cost shou
fair value of $765,000 and the fair value of the 20 percent non-controlling interest was $125,000. No excess fair value over boo

the 2018 transfers until 2019.

59,000 of the 2018 transfers were held until 2019.
ces the following items that would appear on consolidated financial statements for 2018.

ilities of subsidiary to their fair values and setting up Goodwill of there was any and setting up non-controlling interest account i

of intra-entity transfer).
h reduced by the amount of the intra-entity transfer during the 2018. Though failure to do the latter will not affect the net income

which is $74,000. Any gain resulted from such sale should be eliminated in the worksheet.

eet, the building's cost should only be $74,000 as stated in the first answer. But in the books of Seacraft, the building is $128,00
o excess fair value over book value amortization accompanied the acquisition.

ontrolling interest account if partially owned. Elimination entries also include the intra-entity transfers during the period.
will not affect the net income, both consolidated Sales and COGS will be overstated. Reason is, in the point of view of consolida

craft, the building is $128,000 and uses such amount in depreciating the asset.
s during the period.
he point of view of consolidated financial statements, there were no sale between companies as they are treated as one.
y are treated as one.
Allison Corporation acquired 90 percent of Bretton on January 1, 2016. Of Bretton's total acquisition-date fair value, $60,000 w

Since the takeover, Bretton has transferred inventory to its parent as follows:

Year Cost Transfer Price Remaining at Year-End

2016 45,000 90,000 30,000
2017 48,000 80,000 35,000
2018 69,000 92,000 50,000

On January 1, 2017, Allison sold Bretton a building for $50,000 that had originally cost $70,000 but had only a $30,000 book va

Selected figures from the December 31, 2018, trial balances of these two companies are as follows:

Allison Bretton
Sales 700,000 400,000
Cost of goods sold 440,000 220,000
Operating expenses 120,000 80,000
Investment income 0
Inventory 210,000 90,000
Equipment (net) 140,000 110,000
Buildings (net) 350,000 190,000

Determine consolidated totals for each of these account balances.

Excess amortization expences fair value years per year

equipment 60,000 10 6,000
franchises 80,000 20 4,000
annual excess amortizations 10,000

Intra-entity gross profit - inventory, 1/1/18

gross profit 80,000 48,000 32,000
gross profit rate 40%
remaining invetory 35,000
Intra entity gorss profit ending inventory 1/1/18 14,000

Intra entity gorss profit ending inventory 12/31/18

gross profit 92,000 69,000 23,000
gross profit rate 25%
remaining inventory 50,000
Intra-entity gross profit in ending inventory, 12/31/18 12,500

impact of intra entity building transfer

12/31/17 transfer price 50,000
gain on transfer 50,000 30,000 20,000
depreciation expense 50,000 5 10,000
 12/31/18 transfer price
depreciation expense 10,000
accumulated depreciation 20,000

12/31/17 historical cost 70,000

depreciation expnese 30,000 5 6,000
accumulated depreciation 46,000

12/31/18 historical cost

depreciation expnese 6,000
accumulated depreciation 52,000

CONSOLIDATED BALANCES
sales 700,000 400,000 1,008,000
cost of goods sold 440,000 220,000 566,500
operating expenses 120,000 80,000 206,000
investment income 0
inventory 210,000 90,000 287,500
equipment net 140,000 110,000 292,000
buidings net 350,000 190,000 528,000

https://www.homeworklib.com/questions/1017592/allison-corporation-acquired-90-percent-of

Explanation:
Consolidated Balances

Sales = $1,008,000 (add the two book values and subtract $92,000 in intra-entity transfers)
Cost of Goods Sold = $566,500 (add the two book values and subtract $92,000 in intra-entity purchases. Subtract $14,000 bec
Operating Expenses = $206,000 (add the two book values and include the $10,000 excess amortization expenses but remove t
Investment Income = $0 (the intra-entity balance is removed because the individual revenue and expense accounts of the sub
Inventory = $287,500 (add the two book values and subtract the $12,500 ending intra-entity gross profit)
Equipment (net) = $292,000 (add the two book values and include the $60,000 allocation from the acquisition-date fair value l
Buildings (net) = $528,000 (add the two book values and subtract the $20,000 intra-entity gain on the transfer after two years
l acquisition-date fair value, $60,000 was allocated to undervalued equipment (with a 10-year remaining life) and $80,000 was attributed

(at transfer price)

(at transfer price)
(at transfer price)

70,000 but had only a $30,000 book value at the date of transfer. The building is estimated to have a five-year remaining life (straight-line

as follows:
ntity purchases. Subtract $14,000 because of the previous year deferred intra-entity gross profit and add $12,500 to defer the current yea
s amortization expenses but remove the $4,000 in excess depreciation expense [$10,000 – $6,000] created by building transfer)
enue and expense accounts of the subsidiary are included for consolidation)
ntity gross profit)
n from the acquisition-date fair value less three years of excess amortizations)
ty gain on the transfer after two years of excess depreciation [$4,000 per year])
g life) and $80,000 was attributed to franchises (to be written off over a 20-year period).

-year remaining life (straight-line depreciation is used with no salvage value).

d $12,500 to defer the current year intra-entity gross profit in ending inventory.)
ted by building transfer)
On January 1, 2018, Sledge had common stock of $120,000 and retained earnings of $260,000. During that year, Sledge report

On January 1, 2016, Percy, Inc., acquired 80 percent of Sledge's outstanding voting stock. At that date, $60,000 of the acquisiti

In 2017, Sledge sold inventory costing $9,000 to Percy for $15,000. Of this merchandise, Percy continued to hold $5,000 at yea

On January 1, 2017, Percy sold equipment to Sledge for $12,000. This asset originally cost $16,000 but had a January 1, 2017, b

Percy has properly applied the equity method to the investment in Sledge.

a. Prepare worksheet entries to consolidate these two companies as of December 31, 2018.
b. Compute the net income attributable to the noncontrolling interest for 2018.

a. Prepare worksheet entries to consolidate these two companies as of December 31, 2018

No TransaAccounts Debit
1 *G Retained earnings 2,000
Cost of goods sold

2 *TA Equipment 4,000

Investment In Sledge 2,400
Accumulated depreciation

3S Common stock 120,000

Retained earnings 258,000
Investment in Sledge
Noncontroling interest in Sledge

4A Contract 54,000
Buildings 16,000
Investment in Sledge
Noncontrolling interest in Sledge

5I Equity Income in Sledge 10,600

Investment in Sledge

add deff inter com invet prof

lss deff inter inve pfot
 6E Depreciation expense 2,000
Amortization expense 3,000
Contracts
Buildings

7 TI Sales 20,000
Cost of goods sold

8G Cost of goods sold 4,500

Inventory

9 ED Accumulated depreciation 600

Depreciation Expense

b. b. Compute the net income attributable to the noncontrolling interest for 2018.

Net income attributed to NCI $ 2,500

Revenues $ 130,000
Cost of goods sold (70,000)
Other expenses (40,000)
Excess acquisition-date fair value amortization (5,000)
Net income adjusted for amortization $ 15,000
Gross profit 2017 upstream inventory transfer recognized in 2018 (Entry *G) 2,000
Gross profit 2018 upstream inventory transfer recognized in 2018 (Entry G) (4,500)
Adjusted net income of subsidiary -2018 $ 12,500
Outside ownership 20%
Net income attributable to noncontrolling interest $ 2,500

Explanation
a.
Entry *G
To remove intra-entity gross profit from beginning account balances. (40% gross profit rate ($6,000 ÷ $15,000) × remaini

Entry *TA
To adjust the equipment balance to original cost ($16,000) and to adjust accumulated depreciation to the consolidated J

The $2,400 debit to the Investment account transfers the reduction in the net book value of the transferred equipment t
Entry S
To eliminate subsidiary's stockholders' equity accounts (after adjustment for Entry *G) and recognize noncontrolling inte

Entry A
To recognize acquisition-date fair value allocations adjusted for 2 years of amortization (2016 and 2017).

Entry I
To remove parent’s equity method income.

Entry E
Contracts ($60,000 ÷ 20 years) = $ 3,000
Buildings ($20,000 ÷ 10 years) = $ 2,000

To recognize 2018 excess amortizations.

Entry TI
To eliminate intra-entity inventory transfers during 2018.

Entry G
To remove intra-entity gross profit from ending account balances. (45% gross profit rate ($9,000 ÷ $20,000) × remaining

Entry ED
To eliminate excess depreciation on equipment recorded at transfer price. Expense is being reduced from the recorded a
ing that year, Sledge reported sales of $130,000, cost of goods sold of $70,000, and operating expenses of $40,000.

ate, $60,000 of the acquisition-date fair value was assigned to unrecorded contracts (with a 20-year life) and $20,000 to an undervalued b

tinued to hold $5,000 at year-end. During 2018, Sledge transferred inventory costing $11,000 to Percy for $20,000. Percy still held half of t

but had a January 1, 2017, book value of $9,000. At the time of transfer, the equipment's remaining life was estimated to be five years.

Credit 1. Prepare Entry *G to remove the intra-entity gross profit from the beginning account balances.
9,000 15,000 6,000 0.40
2,000 5,000

2. Prepare Entry *TA to adjust the equipment balance to the original cost and to adjust the accumulat
cost 16,000
6,400 sold 12,000 9,000 5
4,000 3,000 7,000 2,400 600
3. Prepare Entry S to eliminate the subsidiary's stockholders' equity accounts and to recog
260,000
302,400
75,600

4. Prepare Entry A to recognize acquisition-date fair value allocations adjusted for 2 years of amortizati
60,000 20 3,000 6,000 54,000
56,000 20,000 10 2,000 4,000 16,000
14,000 80,000 5,000 70,000

5. Prepare Entry I to remove the parent's equity method income.

10,600 sales 130,000
cogs (70,000)
opex (40,000)
sub net income 20,000
d deff inter com invet prof beg bal 2,000 11,000
lss deff inter inve pfot end bal (4,500) 20,000
 less excess amort (5,000) 9,000 0.45 10,000
adj net inc 12,500 4,500
10,000.0
add gain on equp sale 600
10,600
6. Prepare Entry E to recognize 2018 excess amortization.

3,000
2,000

7. Prepare Entry TI to eliminate the intra-entity inventory tranfers during 2018.

20,000

8. Prepare Entry G to remove the intra-entity gross profit from the ending account balances.
4,500

9. Prepare Entry ED to eliminate the excess depreciation on equipment recorded at transfer price.
600

6,000 ÷ $15,000) × remaining inventory ($5,000).

iation to the consolidated January 1, 2018 balance ($7,000 less $600 extra depreciation in 2017).

he transferred equipment to the equipment and A.D. accounts. The Investment account was reduced by $3,000 in 2017 for the original in
cognize noncontrolling interest balance as of January 1, 2018.

and 2017).

000 ÷ $20,000) × remaining inventory ($10,000).

educed from the recorded amount ($2,400 or $12,000 ÷ 5) to historical cost figure ($1,800 or $9,000 ÷ 5). Also increases consolidated net
0,000 to an undervalued building (with a 10-year remaining life).

00. Percy still held half of these items at year-end.

mated to be five years.

ng account balances.

d to adjust the accumulated depreciation to the consolidated January 1, 2018 balance.

y accounts and to recognize the noncontrolling interest balance as of January 1, 2018.

ed for 2 years of amortization.

ccount balances.

orded at transfer price.

in 2017 for the original intra-entity gain and increased by $600 in 2017 for the extra depreciation ($3,000 gain ÷ 5 years) through applicati
creases consolidated net income to recognize the 2018 portion of the deferred intra-entity gain.
ain ÷ 5 years) through application of the equity method. Entry ED (below) completes the adjustment of A.D. and depreciation expense to th
and depreciation expense to their consolidated December 31, 2018 balances.