Chapter 06 - Intercompany Inventory Transactions

Chapter 06 - Intercompany Inventory Transactions
CHAPTER 6
INTERCOMPANY INVENTORY TRANSACTIONS
ANSWERS TO QUESTIONS
Q6-1 All inventory transfers between related companies must be eliminated to avoid an
overstatement of revenue and cost of goods sold in the consolidated income statement. In
addition, when unrealized profits exist at the end of the period, the eliminations are needed to
avoid overstating inventory and consolidated net income.
Q6-2 An inventory transfer at cost results in an overstatement of sales and cost of goods sold.
While net income is not affected, gross profit ratios and other financial statement analysis may
be substantially in error if appropriate eliminations are not made.
Q6-3 An upstream sale occurs when the parent purchases items from one or more
subsidiaries. A downstream sale occurs when the sale is made by the parent to one or more
subsidiaries. Knowledge of the direction of sale is important when there are unrealized profits so
that the person preparing the consolidation worksheet will know whether to reduce consolidated
net income assigned to the controlling interest by the full amount of the unrealized profit
(downstream) or reduce consolidated income assigned to the controlling and noncontrolling
interestson a proportionate basis (upstream).
Q6-4 As in all cases, the total amount of the unrealized profit must be eliminated in preparing
the consolidated statements. When the profits are on the parent company's books, consolidated
net income and income assigned to the controlling interest are reduced by the full amount of the
unrealized profit.
Q6-5 Consolidated net income is reduced by the full amount of the unrealized profits. In the
upstream sale, the unrealized profits are apportioned between the parent company
shareholders and the noncontrolling shareholders. Thus, consolidated net income assigned to
the controlling and noncontrolling interests is reduced by a pro rata portion of the unrealized
profits.
Q6-6 Income assigned to the noncontrolling interest is affected when unrealized profits are
recorded on the subsidiary's books as a result of an upstream sale. A downstream sale should
have no effect on the income assigned to noncontrolling interest because the profits are on the
books of the parent.
Q6-7 The basic eliminating entry needed when the item is resold before the end of the period
is:
Sales
Cost of Goods Sold
XXXXXX
XXXXXX
6-1
The debit to sales is based on the intercorporate sale price. This means that only the revenue
recorded by the company ultimately selling to the nonaffiliate is to be included in the
consolidated income statement. Cost of goods sold is credited for the amount paid by the
purchaser on the intercorporate transfer, thereby permitting the cost of goods sold recorded by
the initial owner to be reported in the consolidated statement.
Q6-8 The basic eliminating entry needed when one or more of the items are not resold before
the end of the period is:
Sales
Cost of Goods Sold
Inventory
XXXXXX
XXXXXX
XXXXXX
The debit to sales is for the full amount of the transfer price. Inventory is credited for the
unrealized profit at the end of the period and cost of goods sold is credited for the amount
charged to cost of goods sold by the company making the intercompany sale.
Q6-9 Cost of goods sold is reported by the consolidated entity when inventory is sold to an
external party. The amount reported as cost of goods sold is based on the amount paid for the
inventory when it was produced or purchased from an external party. If inventory has been
purchased by one company and sold to a related company, the cost of goods sold recorded on
the intercorporate sale must be eliminated.
Q6-10 No adjustment to retained earnings is needed if the intercorporate sales have been
made at cost or if all intercorporate sales have been resold to an external party in the same
accounting period. If all of the intercorporate sales have not been resold by the end of the
period, under the fully adjusted equity method, the parent defers unrealized profits in the
investment in sub and income from sub accounts. This adjustment would be made to retained
earnings under the modified equity method. However, regardless of the parents method for
accounting for the investment, the amount of the noncontrolling interest is reduced by the NCIs
proportionate share of the unrealized profit associated with upstream sales.
Q6-11 A proportionate share of the realized retained earnings of the subsidiary are assigned to
the noncontrolling interest. Any unrealized profits on upstream sales are deducted
proportionately from the amount assigned to the noncontrolling interest. Unrealized profits on
downstream sales do not affect the noncontrolling interest.
Q6-12 When inventory profits from a prior period intercompany transfer are realized in the
current period, the profit is added to consolidated net income and to the income assigned to the
shareholders of the company that made the intercompany sale. If the unrealized profits arise
from a downstream sale, income assigned to the controlling interest will increase by the full
amount of profit realized. When the profits arise from an upstream sale, income assigned to the
controlling and noncontrolling interests will be increased proportionately in the period the profit
is realized. Thus, knowledge of whether the profits resulted from an upstream or a downstream
sale is imperative in assigning consolidated net income to the appropriate shareholder group.
6-2
Q6-13 Under the fully adjusted equity method, consolidated retained earnings is not affected
directly by unrealized profits. Unrealized profits are deferred in the investment in sub and
income from sub accounts on the parents books. Income from sub is closed out to retained
earnings, so the deferral of unrealized profits indirectly affects retained earnings. As a result, the
amount reported for consolidated retained earnings is always equal to the parents retained
earnings.
Q6-14 Consolidated retained earnings are always equal to the parents retained earnings under
the fully adjusted equity method. Since the parent company defers unrealized profits in the
income from sub and investment in sub accounts and since income from sub is closed out to the
parents retained earnings, the ending balance in consolidated retained earnings will reflect the
reduction associated with the deferral of unrealized profits.
Q6-15* Sales between subsidiaries are treated in the same manner as upstream sales.
Whenever the profits are on the books of one of the subsidiaries, the unrealized profits at the
end of the period are eliminated and consolidated net income and income assigned to the
controlling and noncontrolling interests is reduced.
Q6-16* When a company is acquired in a business combinationthe transactions occurring
before the combination generally are regarded as transactions with unrelated parties and no
adjustments or eliminations are needed. All transactions between the companies following the
combination must be fully eliminated.
SOLUTIONS TO CASES
C6-1 Measuring Cost of Goods Sold
a. While the rule covers only a part of the elimination needed, Charlie is correct in that the cost
of goods sold recorded by the selling company must be eliminated to avoid overstating that
caption in the consolidated income statement.
b. The rules will result in the proper consolidated totals if rule #1 is expanded to include a debit
to sales and a credit to ending inventory for the amount of profit recorded by the company that
sold to its affiliate.
c. The way in which the rule is stated makes it appear to be incorrect, but it is correct. The rule
is appropriate in that the cost of goods sold recorded by the purchasing affiliate is equal to the
cost of goods sold to the first owner plus the profit the first owner recorded on the sale.
Eliminating these amounts therefore eliminates the appropriate amount of cost of goods sold. If
an equal amount of sales is eliminated, the rule should result in proper consolidated financial
statement totals.
d. The employee would be forced to look at the books of the selling affiliate and determine the
difference between the intercorporate sale price and the price it paid to acquire or produce the
items. If the items sold to affiliates are routinely produced and costs do not fluctuate greatly, it
may be possible to use some form of gross profit ratio to estimate the amount of unrealized
profit.
6-3
C6-2 Inventory Values and Intercompany Transfers

MEMO
To:
From:
Re:
President
Water Products Corporation
, CPA
Inventory Sale and Purchase of New Inventory
If Water Products holds only a small percent of the ownership of Plumbers Products and
Growinkle Manufacturing, it should have no difficulty in reporting the desired results. This would
not be the case if the two companies are subsidiaries of Water Products.
If both Plumbers Products and Growinkel are subsidiaries of Water Products, both the sale of
inventory to Plumbers Supply and the purchase of inventory from Growinkle Manufacturing must
be eliminated.In addition, the unrealized profit on any unsold inventory involved in these
transfers must be eliminated in preparing the financial statements for the current period.
The consolidated income statement should include the same amount of income on the inventory
sold to Plumbers Supply and resold during the year as would have been recorded if Water
Products had sold the inventory directly to the purchaser. Any income recorded by Water
Products on inventory not resold by Plumbers Supply must be eliminated.
Similarly, the consolidated income statement should include the same amount of income on the
inventory purchased by Water Products and resold during the year as would have been
recorded if Growinkle Manufacturing had sold the inventory directly to the purchaser. Any
income recorded by Growinkle Manufacturing on inventory not resold by Water Products must
be eliminated.
Consolidated net income may increase if Plumbers Supply is able to sell the inventory it
purchased from Water Products at a higher price than would have been received by Water
Products or if it is able to sell a larger number of units. The same can be said for the inventory
purchased by Water Products from Growinkle Manufacturing. It is important to recognize that
the transfer of inventory between Water Products and its subsidiaries does not in itself generate
income for the consolidated entity.
An additional level of complexity may arise in this situation if Water Products uses the LIFO
inventory method. It might, for example, be forced to carry over its LIFO cost basis on the old
inventory sold to Plumbers Supply to the new inventory purchased from Growinkle
Manufacturing since it was replaced within the accounting period.
Primary citation:
ARB 51, Par. 6 (ASC 810)
6-4
C6-3 Intercorporate Inventory Transfers

MEMO
To:
From:
Re:
Treasurer
Evert Corporation
, CPA
Inventory Sale to Parent
This memo is prepared in response to your request for information on the appropriate treatment
of intercompany inventory transfers in consolidated financial statements. The specific
eliminating entries required in this case depend on the valuation assigned to the inventory at
December 31, 20X2.
Frankle Company sold inventory with a carrying value of $240,000 to Evert for $180,000 on
December 20, 20X2. Since the exchange price was well below Frankles cost, consideration
should be given to whether the inventory should be reported at $180,000 or $240,000 in the
consolidated statements at December 31, 20X2, under the lower-of-cost-or-market rule. While
the value of the inventory apparently had fallen below Frankles carrying value, the accounting
standards indicate no loss should be recognized when the evidence indicates that cost will be
recovered with an approximately normal profit margin upon sale in the ordinary course of
business. [ARB 43, Chapter 4, Par. 9; ASC 330]
We are told the management of Frankle considered the drop in prices to be temporary and
Evert was able to sell the inventory for $70,000 more than the original amount paid by Frankle.
It therefore seems appropriate for the consolidated entity to report the inventory at Frankles
cost of $240,000 at December 31, 20X2.
In preparing the consolidated statements at December 31, 20X2 and 20X3, the effects of the
intercompany transfer should be eliminated. [ARB 51, Par. 6; ASC 810]
The following eliminating entry is required at December 31, 20X2:
Sales
Inventory
Cost of Goods Sold
180,000
60,000
240,000
The above entry will increase the carrying value of the inventory to $240,000. Eliminating sales
of $180,000 and cost of goods sold of $240,000 will increase consolidated net income by
$60,000 and income assigned to the noncontrolling interestby$6,000 ($60,000 x 0.10). These
changes will result in an increase in consolidated retained earnings and the amount assigned to
the noncontrolling shareholders in the consolidated balance sheet by $54,000 and $6,000,
respectively.
6-5
C6-3 (continued)
The following eliminating entry is required at December 31, 20X3:
Cost of Goods Sold
Investment in Sub
NCI in NA of Sub
60,000
54,000
6,000
The above entry will reduce consolidated net income by $60,000 and income assigned to the
noncontrolling interest by $6,000 ($60,000 x .10). The credits to Investment in Sub and NCI in
NA of Sub needed to bring the beginning balances into agreement with those reported at
December 31, 20X2.
No eliminations are required for balances reported at December 31, 20X3, because the
inventory has been sold to a nonaffiliate prior to year-end.
Primary citations:
ARB 43, CH 4, Par. 9 (ASC 330)
ARB 51, Par. 6 (ASC 810)
C6-4 Unrealized Inventory Profits
a. When the amount of unrealized inventory profits on the books of the subsidiary at the
beginning of the period is greater than the amount at the end of the period, the income assigned
to the noncontrolling interest for the period will exceed a pro rata portion of the reported net
income of the subsidiary.
b. The subsidiary apparently had less unrealized inventory profit at the end of the period than it
did at the start of the period. In addition, the parent must have had more unrealized profit on its
books at the end of the period than it did at the beginning. The negative effect of the latter
apparently offset the positive effect of the reduction in unrealized profits by the subsidiary.
c. The most likely reason is that a substantial amount of the parent company sales was made to
its subsidiaries and the cost of goods sold on those items was eliminated in preparing the
consolidated statements.
d. A loss was recorded by the seller on an intercompany sale of inventory to an affiliate and the
purchaser continues to hold the inventory.
6-6
C6-5 Eliminating Inventory Transfers

a. If no intercompany sales are eliminated, the income statement may include overstated sales
revenue and cost of goods sold. The net impact on income will depend upon whether there
were more unrealized profits at the beginning or end of the year. If ReadyBuilding does not hold
total ownership of the subsidiaries, the amount of income assigned to noncontrolling
shareholders is likely to be incorrect as well.
Inventory, current assets and total assets, retained earnings, and stockholders' equity are likely
to be overstated if inventories are sold to affiliates at a profit. If the companies pay income taxes
on their individual earnings, the amount of income tax expense also will be overstated in the
period in which unrealized profits are reported and understated in the period in which the profits
are realized.
b. Because profit margins vary considerably, the amount of unrealized profit may vary
considerably if uneven amounts of product are purchased by affiliates from period to period.
ReadyBuilding needs to establish a formal system to monitor intercompany sales. Perhaps the
best alternative would be to establish a separate series of accounts to be used solely for
intercompany transfers. Alternatively, it may be possible to use unique shipping containers for
intercompany sales or to specifically mark the containers in some way to identify the
intercompany shipments at the time of receipt. The purchaser might then use a different type of
inventory tag or mark these units in some way when the product is received and placed in
inventory. Inventory count teams could then easily identify the product when inventories are
taken.
c. A number of factors might be considered. The most important inventory system is the one
used by the company making the intercompany purchase. When intercompany inventory
purchases are bunched at the end of the year, the amount of unrealized profit included in
ending inventory may be quite different under FIFO versus LIFO. If intercompany purchases are
placed in a LIFO inventory base, inventories may be misstated for a period of years before the
inventory is resold. Eliminating entries must be made each of the years until resale to avoid a
misstatement of assets and equities. In those cases where the intercompany purchases are in
high volume and the inventory turns over very quickly, a small amount of inventory left at the
end of the period may be immaterial and of little concern. Typically, a parent will align inventory
costing methods subsequent to a subsidiary acquisition to avoid problems caused by
differences in accounting for the same items or types of items.
d. It may be necessary to start by looking at intercorporate cash receipts and disbursements to
determine the extent of intercorporate sales. One or more months might be selected and all
vouchers examined to establish the level of intercorporate sales and the profit margins recorded
on the sales. For those products sold throughout the year, it may be possible to estimate for the
year as a whole based on an examination of several months. Once total intercompany sales
and profit margins have been estimated, the amount of unrealized profit at year end should be
estimated. One approach would be to take a physical inventory of the specific product types
which have been identified and attempt to trace back using the product identification numbers or
shipping numbers to determine what portion of the inventory on hand was purchased from
affiliates.
6-7
C6-6 Intercompany Profits and Transfers of Inventory

a. The intercompany transfers of Xerox (http://www.xerox.com) between segments are
apparently relatively insignificant because they are not reported in the notes to the consolidated
financial statements relating to segment reporting. For consolidation purposes, all significant
intercompany accounts and transactions are eliminated.
b. Exxon Mobil (http://www.exxonmobil.com) prices intercompany transfers at estimated market
prices. The amount of intercompany transfers is large. In the fiscal year ending December 31,
2009, Exxon Mobil reported eliminations of $302.6 billion of intersegment transfers, which does
not include intercompany transfers within segments. This amount represents nearly 50 percent
of total reported segment sales. For consolidation purposes, Exxon Mobil eliminates the effects
of intercompany transactions.
c. Ford Motor Company (http://www.ford.com) intercompany transfers consist primarily of
vehicles, parts, and components manufactured by the company and its subsidiaries, with a
smaller amount of financial and other services included. The amount of intercompany transfers
is relatively small in relation to sales to unaffiliated customers. The amount has been decreasing
in recent years. The effects of intercompany transfers are eliminated in consolidation.
SOLUTIONS TO EXERCISES
E6-1 Multiple-Choice Questions on Intercompany Inventory Transfers
[AICPA Adapted]
1.
2.
3.
4.
5.
6.
Net assets reported

Profit on intercompany sale
Proportion of inventory unsold at year end
($60,000 / $240,000)
Unrealized profit at year end
Amount reported in consolidated statements
Inventory reported by Banks ($175,000 + $60,000)
Inventory reported by Lamm
Total inventory reported
[$50,000 x ($60,000 / $200,000)]
Amount reported in consolidated statements
6-8
$320,000
$48,000
x
0.25
(12,000)
$308,000
$235,000
250,000
$485,000
(15,000)
$470,000
E6-2 Multiple-Choice Questions on the Effects of Inventory Transfers

[AICPA Adapted]
1.
Cost of goods sold reported by Park

Cost of goods sold reported by Small
Total cost of goods sold reported
Cost of goods sold reported by Park on
sale to Small ($500,000 x 0.40)
Reduction of cost of goods sold reported by
Small for profit on intercompany sale
[($500,000 x 4 / 5) x 0.60]
Cost of goods sold for consolidated entity
$ 800,000
700,000
$1,500,000
(200,000)
(240,000)
$1,060,000
Note:
Answer b in the actual CPA examination question was

$1,100,000, requiring candidates to select the closest
answer.
2.
$32,000
($200,000 + $140,000) $308,000
3.
$6,000
($26,000 + $19,000) $39,000
4.
$9,000
Inventory held by Spin

($32,000 x 0.375)
Unrealized profit on sale
[($30,000 + $25,000) $52,000]
Carrying cost of inventory for
Power
$12,000
(3,000)
$ 9,000
5.
0.20 = $14,000 / [(Stockholders Equity $50,000) +(Patent $20,000)]
6.
14 years = ($28,000 / [(28,000 - $20,000) / 4 years]
E6-3 Multiple Choice Consolidated Income Statement

1.
2.
3.
Total income ($86,000 - $47,000)

Income assigned to noncontrolling
interest [0.40($86,000 - $60,000)]
Consolidated net income assigned
to controlling interest
6-9
$39,000
(10,400)
$28,600
E6-4 Multiple-Choice Questions Consolidated Balances

1.
2.
Amount paid by Lorn Corporation

Unrealized profit
Actual cost
Portion sold
Cost of goods sold
$120,000
(45,000)
$ 75,000
x
0.80
$ 60,000
3.
Consolidated sales
Cost of goods sold
Consolidated net income
Income to Dressers noncontrolling
interest:
Sales
Reported cost of sales
Report income
Portion realized
Realized net income
Portion to Noncontrolling
Interest
Income to noncontrolling
Interest
Income to controlling interest
$140,000
(60,000)
$ 80,000
4.
$120,000
(75,000)
$ 45,000
x
0.80
$ 36,000
x
0.30
(10,800)
$ 69,200
Inventory reported by Lorn

Unrealized profit ($45,000 x .20)
Ending inventory reported
$ 24,000
(9,000)
$ 15,000
E6-5 Multiple-Choice Questions Consolidated Income Statement

1.
$20,000 = $30,000 x [($48,000 - $16,000) / $48,000]
2.
Sales reported by Movie Productions Inc.

Cost of goods sold ($30,000 x 2/3)
3.
$7,000 = [($67,000 - $32,000) x 0.20]
6-10
$67,000
(20,000)
$47,000
E6-6 Realized Profit on Intercompany Sale

a.
Journal entries recorded by Nordway Corporation:

(1)
(2)
(3)
b.
960,000
Cash (Accounts Receivable)

Sales
750,000
Cost of Goods Sold

Inventory
600,000
960,000
750,000
600,000
Journal entries recorded by Olman Company:

(1)
(2)
(3)
c.
Inventory
Cash (Accounts Payable)
Inventory
750,000

Sales
1,125,000
750,000
1,125,000
Cost of Goods Sold

Inventory
750,000
750,000
Eliminating entry:
Sales
Cost of Goods Sold
750,000
750,000
6-11
E6-7 Sale of Inventory to Subsidiary

a.
Journal entries recorded by Nordway Corporation:

(1)
(2)
(3)
b.
960,000

Sales
750,000
Cost of Goods Sold

Inventory
600,000
960,000
750,000
600,000
Journal entries recorded by Olman Company:

(1)
(2)
(3)
c.
Inventory
Inventory
750,000

Sales
810,000
Cost of Goods Sold

Inventory
540,000
750,000
810,000
540,000
Eliminating entry:
Sales
Cost of Goods Sold
Inventory
750,000
708,000
42,000
Calculations
Sales
COGS
Gross Profit
Gross Profit %
Ending
Total
= Re-Sold + Inventory
750,000
540,000
210,000
600,000
432,000
168,000
150,000
108,000
42,000
20%
6-12
E6-8 Inventory Transfer between Parent and Subsidiary
a.
Karlow Corporation reported cost of goods sold of $820,000 ($82 x 10,000 desks)
and Draw Company reported cost of goods sold of $658,000 ($94 x 7,000 desks).
b.
Cost of goods sold for the consolidated entity is $574,000 ($82 x 7,000 desks).
c.
Eliminating entry:
Sales
Cost of Goods Sold
Inventory
940,000
904,000
36,000
Calculations
d.
Sales
COGS
Ending
Total
= Re-sold + Inventory
940,000
658,000
282,000
820,000
574,000
246,000
Gross Profit
120,000
Gross Profit %
12.77%
36,000
Eliminating entry:
Investment in Draw Company
Cost of Goods Sold
e.
84,000
36,000
36,000
Eliminating entry:
Investment in Draw Company
NCI in NA of Draw Company
Cost of Goods Sold
21,600
14,400
36,000
6-13
E6-9 Income Statement Effects of Unrealized Profit

a.
b.
Sale price to Holiday Bakery per bag ($900,000 / 100,000)

Profit per bag [$9.00 - ($9.00 / 1.5)]
Cost per bag
Bags sold by Holiday Bakery (100,000 - 20,000)
Consolidated cost of goods sold
Sales
Cost of Goods Sold
Inventory ($3.00 x 20,000 bags)
9.00
(3.00)
$
6.00
x 80,000
$480,000
900,000
840,000
60,000
Calculations
Sales
COGS
Gross Profit
Gross Profit
%
Total
900,000
600,000
300,000
Ending
Re-sold + Inventory
720,000
180,000
480,000
120,000
240,000
60,000
33.33%
Required Adjustment to Cost of Goods Sold:

Cost of goods sold Farmco ($900,000 / 1.5)
Cost of goods sold Holiday ($9.00 x 80,000 units)
$ 600,000
720,000
$1,320,000
(480,000)
$ 840,000
Consolidated cost of goods sold ($6.00 x 80,000 units)

Required adjustment
c.
Operating income of Holiday Bakery

Net income of Farmco Products
$400,000
150,000
$550,000
(60,000)
$490,000
Less: Unrealized inventory profits

Less: Income assigned to noncontrolling interest
($150,000 - $60,000 unrealized profit) x 0.40
Income assigned to controlling interest
Alternate computation:
Unrealized profits ($3.00 x 20,000 units)
Realized net income
Ownership held by Holiday Bakery
(36,000)
$454,000
$400,000
$150,000
(60,000)
$ 90,000
x
0.60
54,000
$454,000
6-14
E6-10 Prior-Period Unrealized Inventory Profit

a.
Cost per bag of flour ($9.00 / 1.5)

Bags sold
Cost of goods sold from inventory held, January 1, 20X9
$
6.00
x 20,000
$120,000
b.
Investment in Farmco
NCI in NA of Farmco
Cost of Goods Sold
$60,000 = 20,000 bags x $3.00
c.
36,000
24,000
60,000

Add: Inventory profits realized in 20X9
Less: Income assigned to noncontrolling shareholders
($250,000 + $60,000) x 0.40
Alternate computation:
Inventory profits realized in 20X9
Realized net income
Ownership held by Holiday Bakery
$300,000
250,000
$550,000
60,000
$610,000
(124,000)
$486,000
$300,000
$250,000
60,000
$310,000
x 0.60
186,000
$486,000
6-15
E6-11 Computation of Consolidated Income Statement Data

Downstream Transaction Calculations
Sales
COGS
Total
=
30,000
20,000
Gross Profit
10,000
Gross Profit %
33.33%
Ending
Inventory
6,000
4,000
Re-sold +
24,000
16,000
8,000
2,000
Worksheet Entry (not requested in problem)

Sales
30,000
Cost of Goods Sold
28,000
Inventory
2,000
Upstream Transaction Calculations
Sales
COGS
Total
=
80,000
50,000
Gross Profit
30,000
Gross Profit %
Re-sold +
60,000
37,500
Ending
Inventory
20,000
12,500
22,500
7,500
37.50%
Worksheet Entry (not requested in problem)

Sales
80,000
Cost of Goods Sold
72,500
Inventory
7,500
a.
Reported sales of Prem Company

Reported sales of Cooper Company
$400,000
200,000
$600,000
Intercompany sales by Prem Company in 20X5

Intercompany sales by Cooper Company in 20X5
Sales reported on consolidated income statement
6-16
$ 30,000
80,000
(110,000)
$490,000
E6-11 (continued)
b.
Cost of goods sold reported by Prem Company

Cost of goods sold reported by Cooper Company
$250,000
120,000
$370,000
(100,500)
$269,500
Adjustment due to intercompany sales

Adjustment to cost of goods sold:
c.
d.
CGS charged by Prem on sale to Cooper

CGS charged by Cooper ($30,000 - $6,000)
Total charged to CGS
CGS for consolidated entity
$20,000 x ($24,000 / $30,000)
Required adjustment to CGS
$ 20,000
24,000
$ 44,000
CGS charged by Cooper on sale to Prem

CGS charged by Prem ($80,000 - $20,000)
Total charged to CGS
CGS for consolidated entity
$50,000 x ($60,000 / $80,000)
Required adjustment to CGS
Total adjustment required
$ 50,000
60,000
$110,000
(16,000)
$ 28,000
(37,500)
72,500
$100,500
Reported net income of Cooper Company

Unrealized profit on sale to Prem Company
$30,000 x ($20,000 / $80,000)
Realized net income
Noncontrolling interest's share
Income assigned to noncontrolling interest
Reported net income of Pem Company
Less: Income from Cooper
Net income of Cooper Company
Operating income
Less: Unrealized inventory profits of Prem
Company [$10,000 x ($6,000 / $30,000)]
Unrealized inventory profits of Copper
Company [$30,000 x ($20,000 / $80,000)]
Income assigned to noncontrolling
interest
6-17
$ 45,000
(7,500)
$ 37,500
x
0.40
$ 15,000
$107,000
(27,000)
$ 80,000
45,000
$125,000
$ 2,000
7,500
15,000
(24,500)
$ 98,500
E6-12 Sale of Inventory at a Loss

a.
Entries recorded by Trent Company:

Inventory
Cash
Purchase inventory.
400,000
Cash
Sales
Sale of inventory to Gord Corporation.
300,000
Cost of Goods Sold

Inventory
Record cost of goods sold.
400,000
400,000
300,000
400,000
Entries recorded by Gord Corporation

Inventory
Cash
Purchase of inventory from Trent.
300,000
Cash
Sales
Sale of inventory to nonaffiliates.
360,000
Cost of Goods Sold

Inventory
Record cost of goods sold: $180,000 = $300,000 x .60
180,000
300,000
360,000
180,000
b.
Consolidated cost of goods sold for 20X8 should be reported

as $240,000 ($400,000 x 0.60).
c.
Operating income reported by Gord

Net income reported by Trent
Unrealized loss on intercorporate sale
($400,000 - $300,000) x 0.40
Income to assigned to noncontrolling interest
($120,000 x 0.25)
6-18
$230,000
$ 80,000
40,000
120,000
$350,000
(30,000)
$320,000
E6-12 (continued)
d.
Eliminating entry, December 31, 20X8:

Sales
Inventory
Cost of Goods Sold
300,000
40,000
340,000
Computation of cost of goods sold to be eliminated

Cost of goods sold recorded by Trent
Cost of goods sold recorded by Gord
Total recorded
Required elimination
$400,000
180,000
$580,000
(240,000)
$340,000
Intercompany Transaction Calculations
Sales
COGS
Gross Profit
Gross Profit %
Total
=
300,000
400,000
(100,000)
-33.33%
6-19
Re-sold +
180,000
240,000
(60,000)
Ending
Inventory
120,000
160,000
(40,000)
E6-13 Intercompany Sales

20X4 Calculations:
Sales
COGS
Gross Profit
Gross Profit %
Total
= Re-sold
180,000
135,000
120,000
90,000
60,000
45,000
33.33%
Ending
Inventory
45,000
30,000
15,000
Worksheet Entry (not required in problem)

Sales
180,000
Cost of Goods Sold
165,000
Inventory
15,000
20X5 Calculations:
20X5 Upstream
Sales
COGS
Gross Profit
Gross Profit %
Total
135,000
90,000
45,000
33.33%
Re-sold
105,000
70,000
35,000
Ending
Inventory
30,000
20,000
10,000
20X5 Downstream
Sales
COGS
Gross Profit
Gross Profit %
Total
= Re-sold +
280,000
170,000
140,000
85,000
140,000
85,000
50.00%
Ending
Inventory
110,000
55,000
55,000
Worksheet Elimination Entries (not required in problem):

Eliminate Upstream Transactions
Sales
135,000
Cost of Goods Sold
125,000
Inventory
10,000
Eliminate Downstream Transactions
Sales
280,000
Cost of Goods Sold
225,000
Inventory
55,000
6-20
Reversal of 20X4 Upstream Deferral

Investment in Surg
10,500
NCI in NA of Surg
4,500
Cost of Goods Sold
15,000
E6-13 (continued)
a.
Consolidated net income for 20X4:

Operating income of Hollow Corporation
Net income of Surg Corporation
$160,000
90,000
$250,000
(15,000)
$235,000
Less: Unrealized profit Surg Corporation

b.
Inventory balance, December 31, 20X5:

Inventory reported by Hollow Corporation
Unrealized profit on books of Surg
Corporation
($135,000 - $90,000) x ($30,000/$135,000)
Inventory reported by Surg Corporation
Unrealized profit on books of Hollow
Corporation
($280,000 - $140,000) x ($110,000/$280,000)
Inventory, December 31, 20X5
c.
$30,000
(10,000)
$20,000
$110,000
(55,000)
55,000
$75,000
Consolidated cost of goods sold for 20X5:

COGS on sale of inventory on hand January 1, 20X5
$45,000 x ($120,000 / $180,000)
COGS on items purchased from Surg in 20X5
($135,000 - $30,000) x ($90,000 / $135,000)
COGS on items purchased from Hollow in 20X5
($280,000 - $110,000) x ($140,000 / $280,000)
Total cost of goods sold
6-21
$ 30,000
70,000
85,000
$185,000
d.
Income assigned to controlling interest:

Operating income of Hollow Corporation
Net income of Surg Corporation
$220,000
85,000
$305,000
15,000
(10,000)
(55,000)
Add: Inventory profit of prior year realized in 20X5

Less: Unrealized inventory profit Surg Corporation
Unrealized inventory profit Hollow Corporation
Income to noncontrolling interest
($85,000 + $15,000 - $10,000) x 0.30
(27,000)
$228,000
E6-14 Consolidated Balance Sheet Worksheet

a.
Equity Method Entries on Doorst Corp.'s Books:
Investment in Hingle Co.
Income from Hingle Co.
49,000
49,000
Record Doorst Corp.'s 70% share of Hingle Co.'s 20X8 income

Cash
9,800
9,800
Record Doorst Corp.'s 70% share of Hingle Co.'s 20X8 dividend

10,000
10,000
Eliminate the deferred gross profit from downstream sales in 20X8

28,000
28,000
Eliminate the deferred gross profit from upstream sales in 20X8

Book Value Calculations:
NCI
30%
Doorst
Corp.
70%
Common
Stock
Retained
Earnings
Original book value

+ Net Income
- Dividends
103,200
21,000
(4,200)
240,800
49,000
(9,800)
150,000
194,000
70,000
(14,000)
Ending book value
120,000
280,000
150,000
250,000
6-22
Reversal/Deferred GP Calculations:
Doorst
Corp.'s
share
0
0
(10,000)
Downstream Reversal
Upstream Reversal
Downstream Deferred GP
Total
0
0
(10,000)
NCI's share
0
0
0
Upstream Deferred GP
(40,000)
(28,000)
(12,000)
Total
(50,000)
(38,000)
(12,000)
E6-14 (continued)
Basic elimination entry
Common stock
Retained earnings
NCI in NI of Hingle Co.
Dividends declared
NCI in NA of Hingle Co.
150,000
194,000
11,000
9,000
14,000
242,000
108,000
Original amount invested (100%)

Beginning balance in retained earnings
Doorsts % of NI - Deferred GP + Reversal
NCI share of NI - Deferred GP + Reversal
100% of Hingle Co.'s dividends declared
Net book value - Deferred GP + Reversal
NCI share of BV - Deferred GP + Reversal
Deferral of this year's unrealized profits on inventory transfers

Sales
Cost of Goods Sold
Inventory
400,000
350,000
50,000
20X8 Downstream Transactions
Sales
COGS
60,000
45,000
15,000
Gross Profit
40,000
30,000
10,000
Gross Profit %
Re-sold
75,000
40.00%
6-23
Ending
Inventory
25,000
Total
100,000
20X8 Upstream Transactions
Sales
COGS
173,684
118,684
55,000
Gross Profit
126,316
86,316
40,000
Gross Profit %
Re-sold
205,000
Ending
Inventory
95,000
Total
300,000
42.11%
Investment in
Hingle Co.
Acquisition Price
70% Net Income
240,800
49,000
9,800
38,000
Ending Balance
Income from
Hingle Co.
70% Dividends
Deferred GP
Basic
70% Net Income
11,000
Ending Balance
38,000
242,000
242,000
49,000
11,000
E6-14 (continued)
b.
Doorst
Corp.
Hingle
Co.
Balance Sheet
Cash and Receivables
Inventory
Buildings & Equipment (net)
Total Assets
98,000
150,000
310,000
242,000
800,000
40,000
100,000
280,000
Accounts Payable
Common Stock
Retained Earnings
70,000
200,000
530,000
20,000
150,000
250,000
NCI in NA of Hingle Co.

Total Liabilities & Equity
800,000
420,000
420,000
6-24
Elimination Entries
DR
CR
50,000
150,000
194,000
11,000
9,000
400,000
764,000
242,000
292,000
14,000
350,000
108,000
472,000
Consolidated
138,000
200,000
590,000
0
928,000
90,000
200,000
530,000
108,000
928,000
E6-15* Multiple Transfers between Affiliates

a.
Entries recorded by Klon Corporation

Cash
Sales
Sale of inventory to Brant Company.
150,000
Cost of Goods Sold

Inventory
100,000
150,000
100,000
Entries recorded by Brant Company

Inventory
Cash
Purchase of inventory from Klon.
150,000
Cash
Sales
Sale of inventory to Torkel Company.
150,000
Cost of Goods Sold

Inventory
150,000
150,000
150,000
150,000
Entries recorded by Torkel Company

Inventory
Cash
Purchase of inventory from Brant.
150,000
Cash
Sales
Sale of inventory to nonaffiliates.
120,000
150,000
120,000
Cost of Goods Sold

Inventory
90,000
90,000
b.
Cost of goods sold for 20X8 should be reported as $60,000

[$90,000 x ($100,000 / $150,000)].
c.
Inventory at December 31, 20X8, should be reported at $40,000

[$60,000 x ($100,000 / $150,000)].
6-25
E6-15* (continued)
d.
Eliminating entry for inventory:

Sales
Cost of Goods Sold
Inventory
300,000
280,000
20,000
Computation of cost of goods sold to be eliminated

Cost of goods sold recorded by Klon
Cost of goods sold recorded by Brant
Cost of goods sold recorded by Torkel
Total recorded
$100,000
150,000
90,000
$340,000
(60,000)
$280,000
Computation of reduction to carrying value of inventory

Inventory reported by Torkel
Inventory balance to be reported
$60,000
(40,000)
$20,000
6-26
E6-16 Inventory Sales

a.
Journal entries recorded by Spice Company:

(1)
(2)
(3)
Inventory
Record purchases from nonaffiliate.
150,000
150,000

Sales
Record sale to Herb Corporation.
60,000
Cost of Goods Sold

Inventory
Record cost of goods sold to Herb
Corporation.
40,000
60,000
40,000
Journal entries recorded by Herb Corporation:

(1)
(2)
(3)
(4)
b.
Inventory
Record purchases from Spice Company.
60,000

Sales
Record sale of items to nonaffiliates.
90,000
Cost of Goods Sold

Inventory
45,000
60,000
90,000
45,000
Income from Herb

5,000
Investment in Herb
5,000
Eliminate unrealized gross profit on inventory purchases from Herb.
Eliminating entry:
Sales
COGS
Total
= Re-sold +
60,000
45,000
40,000
30,000
Gross Profit
20,000
Gross Profit %
Ending
Inventory
15,000
10,000
15,000
5,000
33.33%
Sales
Cost of Goods Sold
Inventory
Eliminate intercompany sale of inventory.
6-27
60,000
55,000
5,000
E6-17 Prior-Period Inventory Profits

a.
20X8 Sale:
Sales
COGS
Gross Profit
Gross Profit %
Total
= Re-sold +
180,000
170,000
120,000
113,333
60,000
56,667
Ending
Inventory
30,000
20,000
10,000
33.33%
20X9 Sale:
Sales
COGS
Gross Profit
Gross Profit %
Total
= Re-sold +
240,000
170,000
160,000
113,333
80,000
56,667
Ending
Inventory
150,000
100,000
50,000
33.33%
Investment in Level Brothers

NCI in NA of Level Brothers
Cost of goods sold
Reversal of 20X8 gross profit deferral
Sales
Cost of Goods Sold
Inventory
Eliminate 20X9 intercompany sale of inventory.
b.
Reported net income of Level Brothers
Unrealized profit, December 31, 20X8
Realized net income
Noncontrolling interest's share of ownership
6-28
7,500
2,500
10,000
240,000
190,000
50,000
20X8
$350,000
(10,000)
$340,000
x
0.25
$ 85,000
20X9
$420,000
10,000
(50,000)
$380,000
x
0.25
$ 95,000
SOLUTIONS TO PROBLEMS
P6-18 Consolidated Income Statement Data
a.
$180,000 = $550,000 + $450,000 - $820,000
b.
January 1, 20X2: $25,000 = $75,000 - $50,000

December 31, 20X2: $15,000 = $180,000 + $210,000 - $375,000
c.
Investment in Bitner
NCI in NA of Bitner
Cost of Goods Sold
Eliminate beginning inventory profit.
Sales
Cost of Goods Sold
Inventory
d.
Reported net income of Bitner Company

Prior-period profit realized in 20X2
Unrealized profit on 20X2 sales
Realized income
Proportion held by noncontrolling interest
6-29
15,000
10,000
25,000
180,000
165,000
15,000
$ 90,000
25,000
(15,000)
$100,000
x
0.40
$ 40,000
P6-19 Unrealized Profit on Upstream Sales

20X2
Sales
COGS
Gross Profit
Gross Profit %
Ending
Total
200,000
130,000
70,000
160,000
104,000
56,000
40,000
26,000
14,000
20.00%
20X3
Sales
COGS
Gross Profit
Gross Profit %
Total
=
175,000
140,000
35,000
Ending
Re-sold + Inventory
70,000
105,000
56,000
84,000
14,000
21,000
20.00%
20X4
Sales
COGS
Gross Profit
Gross Profit %
Ending
Total
225,000
105,000
120,000
180,000
84,000
96,000
45,000
21,000
24,000
20.00%
Operating income reported by Pacific

Net income reported by Carroll
Inventory profit, December 31, 20X2
$70,000 - ($70,000 / 1.25)
$105,000 - ($105,000 / 1.25)
$120,000 - ($120,000 / 1.25)
Income to noncontrolling interest:
($100,000 - $14,000) x 0.40
($90,000 + $14,000 - $21,000) x 0.40
($160,000 + $21,000 - $24,000) x 0.40
20X2
20X3
20X4
$150,000
100,000
$250,000
$240,000
90,000
$330,000
$300,000
160,000
$460,000
(14,000)
14,000
$236,000
(21,000)
21,000
$323,000
(24,000)
$457,000
(34,400)
(33,200)
$201,600
6-30
$289,800
(62,800)
$394,200
P6-20 Net Income of Consolidated Entity

Operating income of Master for 20X5
Net income of Crown for 20X5
$118,000
65,000
$183,000
25,000
40,000
(14,000)
(55,000)
Add:
Prior year profits realized by Master

Prior year profits realized by Crown
Less:
Unrealized profits for 20X5 by Master
Unrealized profits for 20X5 by Crown
Amortization of differential
($45,000 / 15 years)
Consolidated net income, 20X5
Less:
($65,000 + $40,000 - $55,000 - $3,000) x 0.30
(3,000)
$176,000
(14,100)
$161,900
P6-21 Correction of Eliminating Entries

a.
Proportion of intercompany inventory purchases resold during 20X5:

$ 12,000
Intercompany transfer price
$140,000
Cost of inventory sold ($140,000 / 1.40)
(100,000)
Total Profit
40,000
Proportion of intercompany sale held by
Bolger at year end
0.30
Proportion of intercompany purchases resold
by Bolger during 20X5 (1.00 - 0.30)
b.
0.70
Eliminating entries, December 31, 20X5:

Intercompany Transactions
Sales
COGS
Ending
Total
140,000
98,000
42,000
100,000
70,000
30,000
Gross Profit
40,000
Gross Profit %
28.57%
28,000
Accounts Payable
Accounts Receivable
Eliminate intercompany receivable/payable.
Sales
Cost of Goods Sold
Inventory
6-31
12,000
80,000
80,000
140,000
128,000
12,000
P6-22 Incomplete Data

a.
Increase in fair value of buildings and equipment:

Consolidated total
Balance reported by Lever
Balance reported by Tropic
Increase in value
b.
$ 680,000
(400,000)
(240,000)
$ 40,000
Accumulated depreciation for consolidated entity:

Accumulated depreciation reported by Lever
Accumulated depreciation reported by Tropic
Cumulative write-off of differential
($5,000 x 6 years)
Accumulated depreciation for consolidated entity
c.
$ 60,000
30,000
$ 90,000
40,000
$130,000
x
0.75
$ 97,500
Investment in Tropic Company stock reported at December 31, 20X6:

Tropic's common stock outstanding December 31, 20X6
Tropic's retained earnings reported December 31, 20X6
Total book value
Proportion of ownership held by Lever
Lever's share of net book value
Unamortized differential ($5,000 x 2 years) x 0.75
20X6 Gross Profit Deferral on Downstream Sale
Investment in Tropic Company stock
e.
30,000
$320,000
Amount paid by Lever to acquire ownership in Tropic:

Common stock outstanding
Retained earnings at acquisition
Total book value at acquisition
Increase in value of buildings and equipment
Fair value of net assets acquired
Proportion of ownership acquired
Amount paid by Lever
d.
$180,000
110,000
$ 60,000
112,000
$172,000
x
0.75
$129,000
7,500
(3,000)
$133,500
Intercorporate sales of inventory in 20X6:

Sales reported by Lever
Sales reported by Tropic
Total sales
Sales reported in consolidated income statement
Intercompany sales during 20X6
6-32
$420,000
260,000
$680,000
(650,000)
$ 30,000
P6-22 (continued)
f.
Unrealized inventory profit, December 31, 20X6:

Inventory reported by Lever
Inventory reported by Tropic
Total inventory
Inventory reported in consolidated balance sheet
Unrealized inventory profit, December 31, 20X6
g.
Eliminating entry to remove the effects of intercompany inventory

sales during 20X6:
Sales
Cost of Goods Sold
Inventory
h.
$125,000
90,000
$215,000
(211,000)
$ 4,000
30,000
26,000
4,000
Unrealized inventory profit at January 1, 20X6:

Cost of goods sold reported by Lever
Cost of goods sold reported by Tropic
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.
$310,000
170,000
(26,000)
$454,000
(445,000)
$ 9,000
Accounts receivable reported by Lever at December 31, 20X6:

Accounts receivable reported for consolidated entity
Accounts receivable reported by Tropic
Difference
Adjustment for intercompany receivable/payable:
Accounts payable reported by Lever
Accounts payable reported by Tropic
Total reported accounts payable
Accounts payable reported for consolidated
entity
Adjustment for intercompany receivable/payable
Accounts receivable reported by Lever
6-33
$145,000
(55,000)
$ 90,000
$ 86,000
20,000
$106,000
(89,000)
17,000
$107,000
P6-23 Eliminations for Upstream Sales

a.
Equity Method Entries on Clean Air's Books:
Investment in Special Filter
Income from Special Filter
32,000
32,000
Record Clean Air's 80% share of Special Filter's 20X8 income

16,000
16,000
Reverse of the deffered gross profit from upstream sales in 20X7

12,000
12,000
Eliminate the deffered gross profit from upstream sales in 20X8

NCI
20%
Clean Air
80%
Common
Stock
Retained
Earnings
Original book value

+ Net Income
62,000
8,000
248,000
32,000
90,000
220,000
40,000
Ending book value
70,000
280,000
90,000
260,000
Downstream Reversal
Upstream Reversal
Total
Total
0
20,000
0
(15,000)
Clean
Air's
share
0
16,000
0
(12,000)
5,000
4,000
NCI's share
4,000
(3,000)
1,000
Basic elimination entry:

Common stock
Retained earnings
NCI in NI of Special Filter
NCI in NA of Special Filter
90,000
220,000
36,000
9,000

Beginning balance in RE
Parents % of NI - Def. GP + Reversal
NCI share of NI - Def. GP + Reversal
284,000
71,000
6-34
Net book value - Def. GP + Reversal

NCI share of BV - Def. GP + Reversal
P6-23 (continued)
20X8
Beg.
Inventory
Sales
60,000
COGS
40,000
Gross Profit
20,000
Gross Profit %
33.33%
Sales
COGS
100,000
70,000
30,000
50,000
35,000
15,000
Gross Profit
Gross Profit %
Re-sold
105,000
33.33%
Reversal of last year's deferral:

NCI in NA of Special Filter
Cost of Goods Sold
16,000
4,000
20,000

Sales
Cost of Goods Sold
Inventory
150,000
135,000
15,000
6-35
Ending
Inventory
45,000
Total
150,000
P6-23 (continued)
b.
Computation of consolidated net income and income assigned

to controlling interest:
Operating income reported by Clean Air Products
($250,000 - $175,000 - $30,000)
Net income of Superior Filter
($200,000 - $140,000 - $20,000)
Inventory profit realized from 20X7
Unrealized inventory profit for 20X8
($40,000 + $20,000 - $15,000) x 0.20
c.
$ 45,000
40,000
$ 85,000
20,000
(15,000)
$ 90,000
(9,000)
$ 81,000
Noncontrolling interest, December 31, 20X8:

Common stock
Retained earnings ($220,000 + $40,000)
Less: Unrealized inventory profit
Proportion of stock held by noncontrolling interest
Noncontrolling interest
6-36
$ 90,000
260,000
(15,000)
$335,000
x 0.20
$ 67,000
P6-24 Multiple Inventory Transfers

a.
b.
c.

Operating income of Ajax Corporation
($35,000 - $15,000) x ($7,000 / $35,000)
$80,000
Net income of Beta Corporation

Profit realized from 20X7
($30,000 - $24,000) x ($10,000 / $30,000)
($72,000 - $63,000) x ($12,000 / $72,000)
$37,500
Net income of Cole Corporation

Profit realized from 20X7
($72,000 - $60,000) x ($18,000 / $72,000)
($45,000 - $27,000) x ($15,000 / $45,000)
$20,000
(4,000)
$ 76,000
2,000
(1,500)
38,000
3,000
(6,000)
17,000
$131,000
Inventory balance, December 31, 20X8:

Balance per Beta Corporation
Less: Unrealized profit
$ 7,000
(4,000)
$ 3,000
Balance per Cole Corporation

$12,000
(1,500)
10,500
Balance per Ajax Corporation

Inventory balance per consolidated statement
$15,000
(6,000)
9,000
$22,500
Income assigned to noncontrolling interest in 20X8:

Realized income of Beta Corporation
Proportion of stock held by
noncontrolling interest
$38,000
Realized income of Cole Corporation

Proportion of stock held by
noncontrolling interest
$17,000
6-37
0.30
0.10
$11,400
1,700
$13,100
P6-25
Consolidation with Inventory Transfers and Other Comprehensive Income

Sales
COGS
Gross Profit
Gross Profit %
Total
108,000
90,000
18,000
16.67%
Re-sold
60,000
50,000
10,000
Re-sold
27,000
18,000
9,000
Re-sold
24,000
20,000
4,000
Re-sold
6,000
4,000
2,000
Ending
Inventory
48,000
40,000
8,000
Sales
COGS
Gross Profit
Gross Profit %
Total
45,000
30,000
15,000
33.33%
Ending
Inventory
18,000
12,000
6,000
Sales
COGS
Gross Profit
Gross Profit %
Total
36,000
30,000
6,000
16.67%
Ending
Inventory
12,000
10,000
2,000
Sales
COGS
Gross Profit
Gross Profit %
Beg. Balance
90% Net Income
20X4 Reversal
Ending Balance
Reversal
Total
48,000
32,000
16,000
33.33%
Investment in
Tall Corp.
1,246,600
81,000
54,000
18,000
13,400
1,290,400
13,400
14,600
1,285,800
18,000
Ending
Inventory
42,000
28,000
14,000
Income from
Tall Corp.
90% Dividends
90% of OCI
Gain
Deferred GP
Basic
OCI Entry
14,600
81,000
90% Net Income
13,400
79,800
20X4 Reversal
Ending Balance
79,800
0
6-38
P6-25 (continued)
a.
Balance in investment account at December 31, 20X5:

Proportionate share of Tall's net assets,
January 1 ([$1,400,000 x .90] 8,000 [6,000 x 0.90])
Proportionate share of 20X5 net income
($90,000 x 0.90)
Proportionate share of other comprehensive
income for 20X5 ($20,000 x 0.90)
Proportionate share of dividends received
($60,000 x 0.90)
Reversal of deferred gain from 20X4 downstream transaction
Reversal of deferred gain from 20X4 upstream transaction
($6,000 x .090)
Deferred gain from downstream transaction
Proportionate share of deferred gain from upstream
transaction ($14,000 x 0.90)
Balance in investment account December 31, 20X5
b.
81,000
18,000
(54,000)
8,000
5,400
(2,000)
(12,600)
$1,290,400
Investment income for 20X5:

Net income reported by Tall
Proportion of ownership held by Priority
Prioritys share of reported income from Tall
Reversal of deferred gain from 20X4 downstream transaction
Reversal of deferred gain from 20X4 upstream transaction
($6,000 x 0.90)
Deferred gain from downstream transaction
Proportionate share of deferred gain from upstream
transaction ($14,000 x 0.90)
Investment income for 20X5
c.
$1,246,600
$90,000
x 0.90
81,000
8,000
5,400
(2,000)
(12,600)
$79,800
Income to noncontrolling interests for 20X5:

Net income reported by Tall
20X4 inventory profits realized in 20X5
($15,000 x 0.40)
20X5 unrealized inventory profits
$30,000 - [$30,000 x ($48,000 / $90,000)]
Realized net income
Proportion of ownership held by noncontrolling interest
6-39
$90,000
6,000
(14,000)
$82,000
x 0.10
$ 8,200
P6-25 (continued)
d.
Balance assigned to noncontrolling interest in consolidated balance sheet:

Net assets reported by Tall, January 1
Net income for 20X5
Dividends paid in 20X5
Net assets reported, December 31, 20X5
Unrealized inventory profits at
December 31, 20X5
Other comprehensive income in 20X5
Adjusted net assets, December 31, 20X5
Proportion of ownership held by noncontrolling
interest
Net assets assigned to noncontrolling interest
e.
f.
$1,400,000
90,000
(60,000)
$1,430,000
(14,000)
20,000
$1,436,000
x
0.10
$ 143,600
Inventory reported in consolidated balance sheet:

Inventory held by Priority
$120,000
(14,000)
Inventory held by Tall

$6,000 - [$6,000 x ($24,000 / $36,000)]
Inventory
$100,000
(2,000)
$106,000
98,000
$204,000

Operating income of Priority
Net income of Tall
Total unadjusted income
20X4 inventory profits realized in 20X5
($6,000 + $8,000)
Unrealized inventory profits on 20X5 sales
($14,000 + $2,000)
6-40
$240,000
90,000
$330,000
14,000
(16,000)
$328,000
g.
Eliminating entries, December 31, 20X5
Original book value

+ Net Income
- Dividends
Ending book value
NCI
10%
140,000
9,000
(6,000)
143,000
Priority
Corp.
90%
1,260,000
81,000
(54,000)
1,287,000
Comm.
Stock
400,000
400,000
Add.
Paid-In
Capital
200,000
200,000
P6-25 (continued)
Total
Downstream Reversal
Upstream Reversal
Total
8,000
6,000
(2,000)
(14,000)
(2,000)
Priority
Corp.'s
share
8,000
5,400
(2,000)
(12,600)
(1,200)
6-41
NCI's
share
600
(1,400)
(800)
Retained
Earnings
790,000
90,000
(60,000)
820,000
Acc.
OCI
10,000
10,000

Common stock
Additional paid-in capital
Retained earnings
Accumulated OCI
Income from Tall Corp.
NCI in NI of Tall Corp.
Investment in Tall Corp.
NCI in NA of Tall Corp.
400,000
200,000
790,000
10,000
79,800
8,200

Beginning balance in APIC
Beginning balance in Acc. OCI
PC.s % of NI - Def. GP + Reversal
1,285,800
142,200
Other Comprehensive Income Entry:

OCI from Tall Corp.
OCI to the NCI
18,000
2,000
18,000
2,000

Cost of Goods Sold
13,400
600
14,000

Sales
Cost of Goods Sold
Inventory
126,000
110,000
16,000
6-42

P6-26 Multiple Inventory Transfers between Parent and Subsidiary

20X5 Downstream
Total
= Re-sold +
150,000
90,000
100,000
60,000
50,000
30,000
33.33%
Sales
COGS
Gross Profit
Gross Profit %
Ending
Inventory,
20X5
60,000
40,000
20,000
20X5 Upstream
Sales
COGS
Gross Profit
Gross Profit %
Total
= Re-sold +
100,000
30,000
70,000
21,000
30,000
9,000
30.00%
Sales
COGS
Gross Profit
Gross Profit %
Beg
Inventory,
20X6
= Re-sold +
70,000
50,000
49,000
35,000
21,000
15,000
30.00%
Ending
Inventory,
20X5
70,000
49,000
21,000
Ending
Inventory,
20X6
20,000
14,000
6,000
20X6 Downstream
Sales
COGS
Gross Profit
Gross Profit %
Total
= Re-sold +
60,000
54,000
40,000
36,000
20,000
18,000
33.33%
6-43
Ending
Inventory,
20X6
6,000
4,000
2,000
20X6 Upstream
Sales
COGS
Gross Profit
Gross Profit %
a.
b.
Total
= Re-sold +
240,000
60,000
200,000
50,000
40,000
10,000
16.67%
Ending
Inventory,
20X6
180,000
150,000
30,000
Eliminating entries:
Investment in Slinky
20,000
Cost of goods sold
Eliminate beginning inventory profit of Proud Company.
20,000
Investment in Slinky
12,600
NCI in NA of Slinky
8,400
Cost of goods sold
Inventory
Eliminate beginning inventory profit of Slinky Company.
15,000
6,000
Sales
60,000
Cost of goods sold
Inventory
Eliminate intercompany sale of inventory by Proud Company.
58,000
2,000
Sales
240,000
Cost of goods sold
Inventory
Eliminate intercompany sale of inventory by Slinky Company.
210,000
30,000
Computation of cost of goods sold for consolidated entity:

Inventory produced by Proud in 20X5
($100,000 x 0.40)
Inventory produced by Slinky in 20X5
($70,000 x 0.50)
Inventory produced by Proud in 20X6
($40,000 x 0.90)
Inventory produced by Slinky in 20X6
($200,000 x 0.25)
Cost of goods sold reported in
consolidated income statement
$ 40,000
35,000
36,000
50,000
$161,000
6-44
P6-27 Consolidation following Inventory Transactions

a.
Equity Method Entries on Bell Co.'s Books:
Investment in Troll Corp.
18,000
Income from Troll Corp.
Record Bell Co.'s 60% share of Troll Corp.'s 20X2 income
18,000
Cash
6,000
Record Bell Co.'s 60% share of Troll Corp.'s 20X2 dividend
6,000

6,500
6,500

2,040
Reverse of the deferred gross profit from upstream sales in 20X1
2,040

2,520
2,520
b.
NCI
40%
Bell Co.
60%
Common
Stock
Retained
Earnings
Original book value

+ Net Income
- Dividends
60,000
12,000
(4,000)
90,000
18,000
(6,000)
100,000
50,000
30,000
(10,000)
Ending book value
68,000
102,000
100,000
70,000
Downstream Reversal
Upstream Reversal
Total
0
3,400
(6,500)
(4,200)
Total
(7,300)
Bell Co.'s
share
0
2,040
(6,500)
(2,520)
(6,980)
6-45
NCI's share
1,360
(1,680)
(320)
P6-27 (continued)
Common stock
Retained earnings
NCI in NI of Troll Corp.
Dividends declared
NCI in NA of Troll Corp.
100,000
50,000
11,020
11,680

Bells % of NI - Def. GP + Reversal
10,000
95,020
67,680
Excess Value (Differential) Calculations:

NCI
Bell Co.
+
40%
60%
Land
Beginning balance
Changes
7,200
0
10,800
0
18,000
0
Ending balance
7,200
10,800
18,000
Excess value (differential) reclassification entry:

Land
18,000
10,800
7,200
Optional accumulated depreciation elimination entry

Accumulated depreciation
Building & equipment
45,000
45,000

Cost of Goods Sold
2,040
1,360
3,400

Sales
Cost of Goods Sold
Inventory
63,000
52,300
10,700
6-46
100% of Troll Corp.'s dividends

P6-27 (continued)
20X2 Downstream
Transactions
Total
28,000
Sales
Re-sold
15,000
Ending
Inventory
13,000
COGS
14,000
7,500
6,500
Gross Profit
14,000
7,500
6,500
Gross Profit %
50.00%

Total
42,500
Sales
Re-sold
34,000
Ending
Inventory
8,500
COGS
25,500
20,400
5,100
Gross Profit
17,000
13,600
3,400
Gross Profit %
40.00%

Total
35,000
Sales
Re-sold
24,500
Ending
Inventory
10,500
COGS
21,000
14,700
6,300
Gross Profit
14,000
9,800
4,200
Gross Profit %
40.00%
Investment in
Troll Corp.
Beginning
Balance
60% Net Income
20X1 Reversal
Ending Balance
Reversal
Income from
Troll Corp.
98,760
18,000
2,040
103,780
2,040
6,000
9,020
60% Dividends
Deferred GP
95,020
10,800
Basic
Excess Reclass.
9,020
18,000
60% Net Income
2,040
11,020
20X1 Reversal
Ending Balance
11,020
0
6-47
P6-27 (continued)
c.
Troll
Corp.
Bell Co.
Income Statement
Sales
Less: COGS
Elimination Entries
DR
CR
200,000
(99,800)
120,000
(61,000)
(25,000)
(6,000)
11,020
80,220
(15,000)
(14,000)
30,000
11,020
74,020
11,680
55,700
80,220
30,000
85,700
55,700
80,220
227,960
80,220
(40,000)
268,180
50,000
30,000
(10,000)
70,000
50,000
85,700
55,700
10,000
65,700
227,960
80,220
(40,000)
268,180
69,400
60,000
40,000
520,000
(175,000)
103,780
51,200
55,000
30,000
350,000
(75,000)
Total Assets
618,180
411,200
Accounts Payable
Bonds Payable
Bonds Premium
Common Stock
Retained Earnings
68,800
80,000
1,200
200,000
268,180
41,200
200,000
100,000
70,000
100,000
135,700
1,360
618,180
411,200
237,060
Less: Depreciation Expense

Less: Interest Expense
Consolidated Net Income
NCI in Net Income
Controlling Interest in Net
Income
Statement of Retained Earnings
Beginning Balance
Net Income
Less: Dividends Declared
Ending Balance
Balance Sheet
Cash and Accounts Receivable
Inventory
Land
Buildings & Equipment
Less: Accumulated Depreciation
6-48
63,000
Consolidated
52,300
3,400
135,700
10,700
18,000
45,000
45,000
2,040
65,040
95,020
10,800
161,520
65,700
67,680
7,200
140,580
257,000
(105,100)
(40,000)
(20,000)
0
91,900
(11,680)
120,600
104,300
88,000
825,000
(205,000)
0
932,900
110,000
280,000
1,200
200,000
268,180
73,520
932,900
P6-28 Consolidation Worksheet

a.
Equity Method Entries on Crow Corp.'s Books:
Investment in West Co.
Income from West Co.
14,000
14,000
Record Crow Corp.'s 70% share of West Co.'s 20X9 income

Cash
3,500
3,500
Record Crow Corp.'s 70% share of West Co.'s 20X9 dividend

15,000
15,000
Reverse of the deferred gross profit from downstream sales in 20X8

8,000
8,000

21,000
21,000

17,500
17,500

NCI
30%
Original book
value
+ Net Income
- Dividends
Ending book value
120,000
6,000
(1,500)
124,500
Crow
Corp.
70%
280,000
14,000
(3,500)
290,500
6-49
Common
Stock
150,000
150,000
Retained
Earnings
250,000
20,000
(5,000)
265,000
P6-28 (continued)
Downstream Reversal
Upstream Reversal
Total
Total
15,000
30,000
(8,000)
(25,000)
12,000

Common stock
Retained earnings
NCI in NI of West Co.
Dividends declared
NCI in NA of West Co.
Crow
Corp.'s
share
15,000
21,000
(8,000)
(17,500)
10,500
NCI's share
9,000
(7,500)
1,500
150,000
250,000
24,500
7,500

Crows % of NI - Def. GP + Reversal
100% of West Co.'s dividends
5,000
301,000
126,000

NCI
Crow Corp.
+
30%
70%
Beginning
balance
10,800
25,200
Changes
0
0
Ending balance
10,800
25,200
Land
14,000
0
14,000

Land
14,000
Goodwill
22,000
25,200
10,800

Cost of Goods Sold
45,000
36,000
9,000

Sales
152,000
Cost of Goods Sold
119,000
Inventory
33,000
6-50
Goodwill
22,000
0
22,000
P6-28 (continued)
Total
90,000
Sales
Re-sold
70,000
Ending
Inventory
20,000
COGS
54,000
42,000
12,000
Gross Profit
36,000
28,000
8,000
Gross Profit %
40.00%

Total
62,000
Sales
Ending
Inventory
62,000
Re-sold
COGS
37,000
37,000
Gross Profit
25,000
25,000
Gross Profit %
40.32%
Investment in
West Co.
Beginning
Balance
70% Net Income
269,200
14,000
20X8 Reversal
36,000
Ending Balance
Reversal
290,200
36,000
3,500
25,500
301,000
25,200
Income from
West Co.
70% Dividends
Deferred GP
Basic
Excess Reclass.
25,500
14,000
70% Net Income
36,000
20X8 Reversal
24,500
Ending Balance
24,500
0
6-51
P6-28 (continued)
b.
Crow
Corp.
West Co.
300,000
(200,000)
200,000
(150,000)
(40,000)
24,500
84,500
(30,000)
84,500
20,000

Beginning Balance
Net Income
Ending Balance
532,000
84,500
(35,000)
581,500
250,000
20,000
(5,000)
265,000
Balance Sheet
Cash and Receivable
Inventory
Land, Buildings, and Equipment (net)
81,300
200,000
270,000
290,200
85,000
110,000
250,000
Goodwill
Total Assets
841,500
445,000
Accounts Payable
Common Stock
Retained Earnings
60,000
200,000
581,500
30,000
150,000
265,000
841,500
445,000
Income Statement
Sales
Less: COGS
NCI in Net Income
Controlling Interest in Net Income
c.
20,000
Retained earnings reconciliation, December 31, 20X9:

Retained earnings, Crow Corporation
Retained earnings, West Company
Elimination of Wests beginning RE
Elimination debits in income statement
Elimination credits in income statement
Remove Wests dividends
Consolidated retained earnings
6-52
Elimination Entries
DR
CR
152,000
119,000
45,000
24,500
176,500
7,500
184,000
250,000
184,000
434,000
22,000
72,000
150,000
434,000
9,000
593,000
348,000
(186,000)
164,000
(70,000)
0
92,000
(7,500)
84,500
164,000
5,000
169,000
532,000
84,500
(35,000)
581,500
164,000
33,000
14,000
36,000
Consolidated
301,000
25,200
359,200
169,000
126,000
10,800
305,800
166,300
277,000
534,000
0
22,000
999,300
90,000
200,000
581,500
127,800
999,300
$581,500
265,000
(250,000)
(184,000)
164,000
5,000
$581,500
P6-29 Computation of Consolidated Totals

a.
Consolidated sales for 20X8:

Sales reported
Intercorporate sales
Sales to nonaffiliates
b.
Bunker
Corp.
$660,000
(140,000)
$520,000
Harrison
Co.
$510,000
(240,000)
$270,000
$660,000
1.4
$471,429
$510,000
1.2
$425,000
(128,000)
$343,429
(232,000)
$193,000
Consolidated
$790,000
Consolidated cost of goods sold:

Total sales reported
Ratio of cost to sales price
Cost of goods sold
Amount to be eliminated
(see entry)
Cost of goods sold adjusted
$536,429
Downstream:
Sales
COGS
Gross Profit
Gross Profit %
Ending
Total
140,000
98,000
42,000
100,000
70,000
30,000
40,000
28,000
12,000
28.57%
Upstream:
Sales
COGS
Gross Profit
Gross Profit %
Ending
Total
240,000
192,000
48,000
200,000
160,000
40,000
40,000
32,000
8,000
16.67%
Sales
Cost of Goods Sold
Inventory
Elimination of sales by Bunker to Harrison:
140,000
Sales
Cost of Goods Sold
Inventory
Elimination of sales by Harrison to Bunker:
240,000
6-53
128,000
12,000
232,000
8,000
P6-29 (continued)
c.
Operating income of Bunker Corporation (excluding

income from Harrison Company)
Net income of Harrison Company
$70,000
20,000
$90,000
(12,000)
(8,000)
$70,000
Less: Unrealized inventory profits of Bunker

Unrealized inventory profits of Harrison
Less: Income assigned to noncontrolling interest
($20,000 - $8,000) x 0.20
Income to controlling interest 20X8
d.
(2,400)
$67,600
Inventory balance in consolidated balance sheet:

Inventory reported by Bunker Corporation
Unrealized profits
$48,000
(8,000)
Inventory reported by Harrison Company

Unrealized profits
Inventory balance, December 31, 20X8
$42,000
(12,000)
6-54
$40,000
30,000
$70,000
P6-30 Intercompany Transfer of Inventory and Land

a.
Equity Method Entries on Pine Corp.'s Books:
Investment in Bock Co.
17,500
Income from Bock Co.
Record Pine Corp.'s 70% share of Bock Co.'s 20X3 income
17,500
Cash
10,500
Record Pine Corp.'s 70% share of Bock Co.'s 20X3 dividend
10,500

Record amortization of excess acquisition price
6,300
6,300

3,800
3,800
6,300
6,300
5,600
NCI
30%
Original book value
39,000
+ Net Income
7,500
- Dividends
(4,500)
Ending book value
42,000
Pine Corp.
70%
91,000
17,500
(10,500)
98,000
5,600
Common
Stock
70,000
70,000
Retained
Earnings
60,000
25,000
(15,000)
70,000
Downstream Reversal
Upstream Reversal
Total
Total
0
9,000
(3,800)
(8,000)
(2,800)
Pine
Corp.'s
share
0
6,300
(3,800)
(5,600)
(3,100)
6-55
NCI's share
2,700
(2,400)
300
P6-30 (continued)
Common stock
Retained earnings
NCI in NI of Bock Co.
Dividends declared
NCI in NA of Bock Co.
70,000
60,000
14,400
7,800
11,100
Pines % of NI - Def. GP + Reversal
15,000
94,900
42,300

NCI
Pine Corp.
30%
+
70%
Beginning
balance
13,800
32,200
Changes
(2,700)
(6,300)
Ending balance
Buildings and
Equipment
25,900
Acc.
Depr.
21,000
(4,000)
7,000
2,000
6,300
2,700
20,000
21,000
4,000
25,900
11,100
50,000
50,000
6,300
2,700
9,000
6-56
Patents
20,000

Cost of Goods Sold
(2,000)
(2,000)
Optional accumulated depreciation elimination entry:

28,000
(7,000)

Buildings and Equipment
Patents
20,000
Amortized excess value reclassification entry:

Amortization expense
Depreciation expense
NCI in NI of Bock Co.
100% of Bock Co.'s dividends
P6-30 (continued)
4,900
2,100
Inventory
7,000
Sales
120,000
Cost of Goods Sold
108,200
Inventory
11,800
20X3 Downstream Transactions:
Sales
COGS
Gross Profit
Gross Profit %
Total
30,000
15,000
15,000
50.00%
Re-sold
22,400
11,200
11,200
Ending Inventory,
20X2
48,000
32,000
16,000
33.33%
Re-sold,
20X3
27,000
18,000
9,000
Ending
Inventory
7,600
3,800
3,800
20X2 Upstream Transactions:
Sales
COGS
Gross Profit
Gross Profit %
Ending
Inventory,
20X3
21,000
14,000
7,000
Sales
COGS
Gross Profit
Gross Profit %
Beg. Balance
70% Net Income
20X2 Reversal
Ending Balance
Reversal
20X2 Deferred
GP
Total
90,000
60,000
30,000
33.33%
Investment in
Bock Co.
112,000
17,500
10,500
6,300
6,300
9,400
109,600
6,300
94,900
4,900
0
25,900
Re-sold
66,000
44,000
22,000
Ending
Inventory
24,000
16,000
8,000
Income from
Bock Co.
70% Dividends
Excess Val. Amort.
Deferred GP
6,300
9,400
Basic
14,400
Excess Reclass.
6-57
17,500
70% Net Income
6,300
8,100
20X2 Reversal
Ending Balance
6,300
0
P6-30 (continued)
b.
Income Statement
Sales
Other Income
Less: COGS
Less: Interest Expense
Less: Amortization Expense
NCI in Net Income
Pine
Corp.
Bock
Co.
260,000
13,600
(186,000)
125,000
(79,800)
(20,000)
(16,000)
(15,000)
(5,200)
8,100
59,700
25,000
59,700
25,000

Beginning Balance
Net Income
Ending Balance
127,900
59,700
(30,000)
157,600
60,000
25,000
(15,000)
70,000
Balance Sheet
Inventory
15,400
165,000
21,600
35,000
80,000
340,000
(140,000)
109,600
40,000
260,000
(80,000)
570,000
276,600
Accounts Payable
Bonds Payable
Bonds Premium
Common Stock
Retained Earnings
92,400
200,000
120,000
157,600
35,000
100,000
1,600
70,000
70,000
570,000
276,600
Land
Patents
Total Assets
6-58
Elimination Entries
DR
CR
120,000
108,200
9,000
2,000
7,000
14,400
143,400
7,800
151,200
60,000
151,200
211,200
70,000
211,200
2,700
2,100
286,000
265,000
13,600
(148,600)
6,300
123,500
2,700
126,200
(37,000)
(21,200)
(7,000)
0
64,800
(5,100)
59,700
126,200
15,000
141,200
127,900
59,700
(30,000)
157,600
11,800
7,000
20,000
50,000
6,300
4,900
21,000
102,200
Consolidated
50,000
4,000
94,900
25,900
193,600
141,200
42,300
11,100
194,600
37,000
181,200
120,000
570,000
(174,000)
0
21,000
755,200
127,400
300,000
1,600
120,000
157,600
48,600
755,200
P7-30 (continued)
Note: Financial statements are not required.
Pine Corporation and Subsidiary
Consolidated Balance Sheet
December 31, 20X3
Inventory
Land
Patent
Total Assets
$ 37,000
181,200
120,000
$570,000
(174,000)
Accounts Payable
Bonds Payable
Bond Premium
Stockholders Equity:
Controlling Interest:
Common Stock
Retained Earnings
Total Controlling Interest
Noncontrolling Interest
Total Stockholders Equity
Total Liabilities and Stockholders' Equity
396,000
21,000
$755,200
$127,400
$300,000
1,600
301,600
$120,000
157,600
$277,600
48,600
326,200
$755,200

Consolidated Income Statement
Year Ended December 31, 20X3
Sales
Other Income
Total Income
Cost of Goods Sold
Depreciation Expense
Interest Expense
Amortization Expense
Total Expenses
Income to Noncontrolling Interest
Income to Controlling Interest
$265,000
13,600
$278,600
$148,600
37,000
21,200
7,000
(213,800)
$ 64,800
(5,100)
$ 59,700
6-59

Consolidated Retained Earnings Statement
Retained Earnings, January 1, 20X3
Income to Controlling Interest, 20X3
$127,900
59,700
$187,600
(30,000)
$157,600
Dividends Declared, 20X3

Retained Earnings, December 31, 20X3
P6-31 Consolidation Using Financial Statement Data
a.
Equity Method Entries on Bower Corp.'s Books:
Investment in Concerto Co.
21,000
Income from Concerto Co.
Record Bower Corp.'s 60% share of Concerto Co.'s 20X6 income
21,000
Cash
12,000
Record Bower Corp.'s 60% share of Concerto Co.'s 20X6 dividend
12,000

6,000
6,000

4,000
4,000

2,000
2,000

4,800
4,800

5,400
5,400
6-60

NCI
40%
Bower
Corp.
60%
Common
Stock
Retained
Earnings
Original book value

+ Net Income
- Dividends
80,000
14,000
(8,000)
120,000
21,000
(12,000)
50,000
150,000
35,000
(20,000)
Ending book value
86,000
129,000
50,000
165,000
P6-31 (continued)
Downstream Reversal
Upstream Reversal
Total

Common stock
Retained earnings
NCI in NI of Concerto Co.
Dividends declared
NCI in NA of Concerto Co.
Total
4,000
8,000
(2,000)
(9,000)
1,000
Bower
Corp.'s
share
4,000
4,800
(2,000)
(5,400)
1,400
NCI's share
3,200
(3,600)
(400)
50,000
150,000
22,400
13,600
20,000
130,400
85,600

NCI
Bower Corp.
+
40%
60%
Beginning balance
16,000
24,000
Changes
(4,000)
(6,000)
Ending balance
12,000
18,000

Goodwill impairment loss
10,000
NCI in NI of Concerto Co.
6-61

Bowers % of NI - Def. GP + Reversal
100% of Concerto Co.'s dividends
Goodwill
40,000
(10,000)
30,000
6,000
4,000

Goodwill
30,000
18,000
12,000

P6-31 (continued)
25,000
25,000

Cost of Goods Sold
8,800
3,200
12,000

Sales
Cost of Goods Sold
Inventory
112,000
101,000
11,000
Sales
COGS
Gross Profit
Gross Profit %
Ending Inv.,
20X5
14,000
10,000
4,000
28.57%
Sales
COGS
Gross Profit
Gross Profit %
Total
22,000
15,714
6,286
28.57%
6-62
Re-sold
15,000
10,714
4,286
Ending
Inventory
7,000
5,000
2,000

Ending Inv.,
20X5
48,000
40,000
8,000
16.67%
Sales
COGS
Gross Profit
Gross Profit %

Total
90,000
75,000
15,000
16.67%
Sales
COGS
Gross Profit
Gross Profit %
P6-31 (continued)
Re-sold
36,000
30,000
6,000
Investment in
Concerto Co.
Beg. Balance
60% Net Income
20X5 Reversal
Ending Balance
Reversal
Income from
Concerto Co.
135,200
21,000
12,000
6,000
7,400
8,800
60% Dividends
Excess Val. Amort.
Deferred GP
6,000
7,400
139,600
8,800
130,400
18,000
Ending
Inventory
54,000
45,000
9,000
Basic
Excess Reclass.
21,000
60% Net Income
8,800
20X5 Reversal
16,400
Ending Balance
22,400
6,000
0
6-63
b.
Income Statement
Sales
Less: COGS
Less: Depreciation & Amort. Expense
Less: Other Expenses
Less: Goodwill Impairment Loss
NCI in Net Income
Bower
Corp.
Concerto
Co.
400,000
(280,000)
200,000
(120,000)
(25,000)
(35,000)
(15,000)
(30,000)
16,400
76,400
35,000
76,400
35,000
285,000
76,400
(50,000)
311,400
150,000
35,000
(20,000)
165,000
26,800
80,000
120,000
70,000
340,000
(165,000)
139,600
35,000
40,000
90,000
20,000
200,000
(85,000)
611,400
300,000
Accounts Payable
Bonds Payable
Common Stock
Retained Earnings
80,000
120,000
100,000
311,400
15,000
70,000
50,000
165,000
611,400
300,000

Beginning Balance
Net Income
Ending Balance
Balance Sheet
Cash
Accounts Receivable
Inventory
Land
Goodwill
Total Assets
P6-32 Intercorporate Transfers of Inventory and Equipment
6-64
Elimination Entries
DR
CR
112,000
12,000
101,000
10,000
22,400
144,400
13,600
158,000
150,000
158,000
308,000
6,000
119,000
4,000
123,000
123,000
20,000
143,000
285,000
76,400
(50,000)
311,400
25,000
30,000
63,800
50,000
308,000
3,200
361,200
488,000
(287,000)
(40,000)
(65,000)
(10,000)
0
86,000
(9,600)
76,400
11,000
25,000
8,800
Consolidated
130,400
18,000
184,400
143,000
85,600
12,000
240,600
61,800
120,000
199,000
90,000
515,000
(225,000)
0
30,000
790,800
95,000
190,000
100,000
311,400
94,400
790,800
a.
Consolidated cost of goods sold for 20X9:

Amount reported by Foster Company
Amount reported by Block Corporation
Adjustment for unrealized profit in
beginning inventory sold in 20X9
Adjustment for inventory purchased from
subsidiary and resold during 20X9:
CGS recorded by Foster ($30,000 x 0.60)
CGS recorded by Block
Total recorded
CGS based on Block's cost ($20,000 x 0.60)
Required adjustment
Cost of goods sold
b.
(15,000)
$18,000
20,000
$38,000
(12,000)
(26,000)
$822,000
Consolidated inventory balance:

Amount reported by Foster
Amount reported by Block
Total inventory reported
Unrealized profit in ending inventory held by
Foster [($30,000 - $20,000) x 0.40]
Consolidated balance
c.
$593,000
270,000
$137,000
130,000
$267,000
(4,000)
$263,000
Income assigned to noncontrolling interest:

Net income reported by Block Corporation
Adjustment for realization of profit on inventory
sold to Foster in 20X8
Adjustment for unrealized profit on inventory sold
to Foster in 20X9
Realized net income of Block for 20X9
Proportion of ownership held by noncontrolling interest
6-65
$70,000
15,000
(4,000)
$81,000
x 0.10
$ 8,100
P6-32 (continued)
d.
Amount assigned to noncontrolling interest in consolidated balance

sheet:
Block Corporation common stock outstanding
Block Corporation retained earnings, January 1, 20X9
Net income for 20X9
Book value, December 31, 20X9
Adjustment for unrealized profit on inventory
sold to Foster
Realized book value of Block Corporation
Proportion of ownership held by noncontrolling
interest
Balance assigned to noncontrolling interest
e.
$ 50,000
165,000
70,000
(20,000)
$265,000
(4,000)
$261,000
x
0.10
$ 26,100
Consolidated retained earnings at December 31, 20X9:

Balance reported by Foster Company, January 1, 20X9
Net income for 20X9
Balance reported by Foster Company, December 31, 20X9
f.
$235,000
180,900
(40,000)
$375,900

NCI
10%
+ Foster Co.
90%
Comm
on
Stock
Retained
Earnings
Original book value

+ Net Income
- Dividends
21,500
7,000
(2,000)
193,500
63,000
(18,000)
50,000
165,000
70,000
(20,000)
Ending book value
26,500
238,500
50,000
215,000
6-66
P6-32 (continued)
Downstream Reversal
Upstream Reversal
Total
Total
0
15,000
0
(4,000)
11,000

Common stock
Retained earnings
Income from Block Corp.
NCI in NI of Block Corp.
Dividends declared
Investment in Block Corp.
NCI in NA of Block Corp.
Cost of Goods Sold
Foster
Co.'s
share
0
13,500
0
(3,600)
9,900
NCI's share
1,500
(400)
1,100
50,000
165,000
72,900
8,100

Fosters % of NI - Def. GP + Reversal
100% of Block Corp.'s dividends
20,000
248,400
27,600
13,500
1,500
15,000

Sales
30,000
Cost of Goods Sold
26,000
Inventory
4,000
Sales
COGS
Gross Profit
Gross Profit %
Ending
Inventory
75,000
60,000
15,000
20.00%
Sales
COGS
Gross Profit
Gross Profit %
Total
30,000
20,000
10,000
33.33%
6-67
Re-sold
18,000
12,000
6,000
Ending
Inventory
12,000
8,000
4,000
P6-32 (continued)
Investment in
Block Corp.
Beg. Balance
90% Net Income
20X8 Reversal
Ending Balance
Reversal
Income from
Block Corp.
180,000
63,000
13,500
18,000
3,600
90% Dividends
Deferred GP
3,600
234,900
13,500
248,400
Basic
72,900
63,000
90% Net Income
13,500
20X8 Reversal
72,900
Ending Balance
g.
Income Statement
Sales
Other Income
Less: COGS
Income from Block Corp.
NCI in Net Income
Income
Beginning Balance
Net Income
Ending Balance
Balance Sheet
Cash
Accounts Receivable
Other Receivables
Inventory
Land
Total Assets
Accounts Payable
Other Payables
Bonds Payable
Bond Premium
Common Stock
Additional Paid-in Capital
Retained Earnings
Foster
Co.
Block
Corp.
815,000
26,000
(593,000)
415,000
15,000
(270,000)
(45,000)
(95,000)
72,900
180,900
(15,000)
(75,000)
70,000
72,900
102,900
8,100
41,000
180,900
70,000
111,000
41,000
180,900
235,000
180,900
(40,000)
375,900
165,000
70,000
(20,000)
215,000
165,000
111,000
41,000
20,000
61,000
235,000
180,900
(40,000)
375,900
187,000
80,000
40,000
137,000
80,000
500,000
(155,000)
234,900
1,103,900
57,400
90,000
10,000
130,000
60,000
250,000
(75,000)
63,000
95,000
250,000
35,000
20,000
200,000
2,400
50,000
210,000
110,000
375,900
1,103,900
6-68
522,400
215,000
522,400
Elimination Entries
DR
CR
30,000
15,000
26,000
276,000
(60,000)
(170,000)
0
189,000
(8,100)
248,400
252,400
61,000
27,600
88,600
98,000
115,000
450,000
2,400
210,000
110,000
375,900
26,100
1,387,400
50,000
276,000
1,500
327,500
1,200,000
41,000
(822,000)
244,400
170,000
50,000
263,000
140,000
750,000
(230,000)
0
1,387,400
4,000
13,500
13,500
Consolidated
P6-33 Consolidated Balance Sheet Worksheet [AICPA Adapted]

NCI
10%
80,000
10,100
(100)
90,000
Original book value

+ Net Income
- Dividends
Ending book value
Pine Corp.
90%
720,000
90,900
(900)
810,000
Common
Stock
200,000
Retained
Earnings
600,000
101,000
(1,000)
700,000
200,000
Downstream Reversal
Upstream Reversal
Total
Total
0
0
-3,000
0
(3,000)
Pine
Corp.'s
share
0
0
-3,000
0
(3,000)
NCI's share
0
0
0

Common stock
Retained earnings
Income from Slim Corp.
NCI in NI of Slim Corp.
Dividends declared
Investment in Slim Corp.
NCI in NA of Slim Corp.
200,000
600,000
87,900
10,100

Pines % of NI - Def. GP + Reversal
1,000
807,000
90,000

NCI
Pine Corp.
+
10%
90%
Goodwill
Beginning balance
Changes
50,000
0
450,000
0
500,000
0
Ending balance
50,000
450,000
500,000

Goodwill
500,000
450,000
50,000
6-69
100% of Slim Corp.'s dividends

P6-33 (continued)
Intercompany Transactions
Dividends Payable
Dividends Receivable
900
Accounts Payable
Accounts Receivable
90,000
900
90,000
Note Payable
Note Receivable
100,000
100,000
Interest Payable
Interest Receivable
5,000
5,000

Sales
Cost of Goods Sold
Inventory
300,000
297,000
3,000
Sales
COGS
240,000
228,000
12,000
60,000
57,000
3,000
Gross Profit
Gross Profit %
Re-sold
285,000
20.00%
Investment in
Slim Corp.
Acquisition
Price
90% Net Income
Income from
Slim Corp.
1,170,000
90,900
900
3,000
Ending Balance
Ending
Inventory
15,000
Total
300,000
90% Dividends
Deferred GP
Basic
Excess Reclass.
90% Net Income
87,900
Ending Balance
3,000
1,257,000
807,000
450,000
90,900
87,900
0
6-70
P6-33 (continued)
Pine
Corp.
Slim
Corp.
105,000
410,000
15,000
120,000
Merchandise Inventory
Plant & Equipment (net)
920,000
1,000,000
1,257,000
670,000
400,000
Goodwill
Total Assets
3,692,000
1,205,000
140,000
305,000
500,000
3,052,000
200,000
700,000
Balance Sheet
Cash
AR& Other Receivables
AP& Other Liabilities
Common Stock
Retained Earnings
Elimination Entries
DR
CR
900
90,000
100,000
5,000
3,000
807,000
450,000
500,000
500,000
900
90,000
100,000
5,000
200,000
600,000
87,900
10,100
300,000

3,692,000
1,205,000
6-71
1,393,900
1,455,900
Consolidated
120,000
334,100
1,587,000
1,400,000
0
500,000
3,941,100
249,100
1,000
297,000
90,000
50,000
438,000
500,000
3,052,000
140,000
3,941,100
P6-34 Comprehensive Worksheet Problem

a.
Equity Method Entries on Randall Corp.'s Books:
Investment in Sharp Co.
320,000
Cash
320,000
Record the initial investment in Sharp Co.

Income from Sharp Co.
32,000
32,000
Record Randall Corp.'s 80% share of Sharp Co.'s 20X7 income

Cash
20,000
20,000
Record Randall Corp.'s 80% share of Sharp Co.'s 20X7 dividend

4,000
4,000

2,000
2,000

3,000
3,000

6,400
6,400

8,000
8,000
6-72
6-34 (continued)
b.
+
NCI
20%
Randall
Corp.
80%
Common
Stock
Add. Paidin Capital
Retained
Earnings
Original book value

+ Net Income
- Dividends
67,000
8,000
(5,000)
268,000
32,000
(20,000)
100,000
20,000
215,000
40,000
(25,000)
Ending book value
70,000
280,000
100,000
20,000
230,000
Total
2,000
8,000
Downstream Reversal
Upstream Reversal
Downstream Deferred
GP
Total
Randall
Corp.'s
share
2,000
6,400
NCI's share
1,600
(3,000)
(10,000)
(3,000)
(8,000)
(2,000)
(3,000)
(2,600)
(400)

Common stock
Retained earnings
NCI in NI of Sharp Co.
Dividends declared
NCI in NA of Sharp Co.
100,000
20,000
215,000
29,400
7,600
Ending balance

Randalls % of NI - Def. GP + Reversal
25,000
277,400
69,600

NCI
Randall
+ Corp. 80%
20%
Beginning balance
Changes
100% of Sharp Co.'s dividends

Buildings &
equipment
Acc. Depr.
7,000
(1,000)
28,000
(4,000)
50,000
(15,000)
(5,000)
6,000
24,000
50,000
(20,000)
6-73
P6-34 (continued)
5,000
4,000
1,000

Buildings & equipment
50,000
20,000
24,000
6,000
Eliminate intercompany accounts:

Accounts payable
Accounts receivable
10,000
10,000

40,000
Cost of Goods Sold
40,000
8,400
1,600
10,000

Sales
57,000
Cost of Goods Sold
44,000
Inventory
13,000
Sales
COGS
Gross Profit
Gross Profit %
Total
26,000
20,000
6,000
23.08%
Re-sold
17,333
13,333
4,000
Re-sold
Ending
Inventory
8,667
6,667
2,000
Sales
COGS
Gross Profit
Gross Profit %
Total
12,000
9,000
3,000
25.00%
6-74
0
0
0
Ending
Inventory
12,000
9,000
3,000
P6-34 (continued)
Total
60,000
Sales
Re-sold
36,000
Ending
Inventory
24,000
COGS
40,000
24,000
16,000
Gross Profit
20,000
12,000
8,000
Gross Profit %
33.33%

Total
45,000
Sales
Re-sold
15,000
Ending
Inventory
30,000
COGS
30,000
10,000
20,000
Gross Profit
15,000
5,000
10,000
Gross Profit %
33.33%
Investment in
Sharp Co.
Beginning Balance
80% Net Income
Income from
Sharp Co.
287,600
32,000
32,000
20,000
20X6 Reversal
8,400
Ending Balance
293,000
Reversal
8,400
4,000
11,000
80% Dividends
Excess Val.
Amort.
Deferred GP
4,000
11,000
8,400
25,400
277,400
Basic
24,000
Excess Reclass.
29,400
4,000
0
6-75
80% Net Income
20X6 Reversal
Ending Balance
P6-34 (continued)
Randall
Corp.
Sharp
Co.
500,000
20,400
(416,000)
250,000
30,000
(202,000)
57,000
(30,000)
(24,000)
25,400
75,800
(20,000)
(18,000)
5,000
40,000
29,400
91,400
7,600
4,000
58,000
1,000
(55,000)
(42,000)
0
82,400
(6,600)
75,800
40,000
99,000
59,000
75,800
337,500
75,800
(50,000)
363,300
215,000
40,000
(25,000)
230,000
215,000
99,000
59,000
25,000
84,000
337,500
75,800
(50,000)
363,300
130,300
80,000
170,000
600,000
(310,000)
293,000
10,000
70,000
110,000
400,000
(120,000)
Total Assets
963,300
470,000
98,400
Accounts Payable
Bonds Payable
Bond Premium
Common Stock
Retained Earnings
100,000
300,000
10,000
363,300
15,200
100,000
4,800
100,000
20,000
230,000
963,300
470,000
Income Statement
Sales
Other Income
Less: COGS
Less: Depreciation & Amortization Exp.
NCI in Net Income
Income
Beginning Balance
Net Income
Ending Balance
Balance Sheet
Cash
Accounts Receivable
Inventory
200,000
6-76
Elimination Entries
DR
CR
10,000
44,000
314,000
50,000
40,000
8,400
100,000
20,000
314,000
1,600
445,600
10,000
13,000
40,000
20,000
277,400
24,000
384,400
84,000
69,600
6,000
159,600
Consolidated
693,000
50,400
(564,000)
140,300
140,000
267,000
1,010,000
(410,000)
0
1,147,300
105,200
400,000
4,800
200,000
0
363,300
74,000
1,147,300
P6-34 (continued)
d.
Randall Corporation and Subsidiary

Consolidated Balance Sheet
December 31, 20X7
Cash
Accounts Receivable
Inventory
Total Current Assets
Total Assets
$ 140,300
140,000
267,000
$ 547,300
$1,010,000
(410,000)
Accounts Payable
Bonds Payable
Bond Premium
Stockholders Equity:
Controlling Interest:
Common Stock
Retained Earnings
Total Controlling Interest
Noncontrolling Interest
Total Stockholders Equity
Total Liabilities and Stockholders' Equity
600,000
$1,147,300
$ 105,200
$ 400,000
4,800
404,800
$ 200,000
363,300
$ 563,300
74,000
637,300
$1,147,300

Consolidated Income Statement
Sales
Other Income
$ 693,000
50,400
$ 743,400
Cost of Goods Sold

Depreciation and Amortization Expense
Other Expenses
Income to Noncontrolling Interest
Income to Controlling Interest
$ 564,000
55,000
42,000
6-77
(661,000)
$ 82,400
(6,600)
$ 75,800

Consolidated Statement of Retained Earnings
Retained Earnings, January 1, 20X7
Income to Controlling Interest, 20X7
$ 337,500
75,800
$ 413,300
Dividends Declared, 20X7
(50,000)
Retained Earnings, December 31, 20X7
$ 363,300
P6-35 Comprehensive Consolidation Worksheet; Equity Method [AICPA Adapted]
Equity Method Entries on Fran Corp.'s Books:
Investment in Brey Inc.
750,000
Cash
750,000
Record the initial investment in Brey Inc.

Income from Brey Inc.
190,000
190,000
Record Fran Corp.'s 100% share of Brey Inc.'s 20X9 income

Cash
40,000
40,000
Record Fran Corp.'s 100% share of Brey Inc.'s 20X9 dividend

44,000
44,000
6-78

18,000
18,000
Fran Corp.
100%
Common
Stock
Add. Paidin Capital
Retained
Earnings
Original book value

+ Net Income
- Dividends
636,000
190,000
(40,000)
400,000
80,000
156,000
190,000
(40,000)
Ending book value
786,000
400,000
80,000
306,000
Total
=
0
0
Fran Corp.'s
share
0
0
Downstream Reversal
Upstream Reversal
Downstream Deferred
GP
0
(18,000)
0
(18,000)
Total
(18,000)
(18,000)
6-79
P6-35 (continued)
Common stock
Retained earnings
Dividends declared
400,000
80,000
156,000
172,000
Ending balance

Frans % of NI - Def. GP + Reversal
40,000
768,000
Fran Corp.
100%
Beginning balance
Changes
Machinery
100% of Brey Inc.'s dividends

Acc. Depr.
54,000
0
(9,000)
60,000
(35,000)
70,000
54,000
(9,000)
25,000
Goodwill impairment loss
9,000
35,000
44,000

Machinery
Goodwill
54,000
25,000
9,000
70,000

86,000
86,000

Sales
Cost of Goods Sold
Inventory
Goodwill
114,000
(44,000)
Accounts payable
Accounts receivable
180,000
162,000
18,000
6-80
P6-35 (continued)
Total
Re-sold
Ending
Inventory
Sales
180,000
144,000
36,000
COGS
90,000
72,000
18,000
Gross Profit
90,000
72,000
18,000
Gross Profit %
50.00%
Investment in
Brey Inc.
Acquisition Price
100% Net Income
750,000
190,000
40,000
44,000
18,000
Ending Balance
Income from
Brey Inc.
100% Dividends
Excess Val. Amort.
Deferred GP
Basic
70,000
Excess Reclass.
100% Net Income
128,000
Ending Balance
44,000
18,000
838,000
768,000
190,000
172,000
44,000
0
6-81
P6-35 (continued)
Note that in the 8th edition, the sale of the warehouse was an intercompany transaction and needed to be
eliminated. We changed the problem in the 9th edition to assume that the sale was to a non-affiliated third
party. Thus, the gain on the sale of the warehouse is not eliminated in this problem.
Income Statement
Net Sales
Gain on Sale of Warehouse
Less: COGS
Less: Operating Expenses
Less: Goodwill Impairment
Net Income
Statement of Retained
Earnings
Beginning Balance
Net Income
Ending Balance
Fran Corp.
Brey Inc.
Elimination Entries
DR
CR
3,800,000
30,000
(2,360,000)
(1,100,000)
1,500,000
180,000
(870,000)
(440,000)
128,000
498,000
190,000
440,000
498,000
156,000
190,000
(40,000)
306,000
938,000
156,000
396,000
552,000
Balance Sheet
Cash
Accounts Receivable (net)
Inventories
Land, Plant, and Equipment
570,000
860,000
1,060,000
1,320,000
(370,000)
838,000
150,000
350,000
410,000
680,000
(210,000)
Goodwill
Total Assets
4,278,000
1,380,000
25,000
79,000
Accounts Payable & Accrued

Expenses
Common Stock
Retained Earnings
1,340,000
1,700,000
300,000
938,000
4,278,000
594,000
400,000
80,000
306,000
1,380,000
86,000
400,000
80,000
552,000
1,118,000
6-82
44,000
206,000
5,120,000
30,000
(3,068,000)
(1,549,000)
(35,000)
0
498,000
206,000
40,000
246,000
440,000
498,000
0
938,000
162,000
9,000
35,000
172,000
396,000
Consolidated
86,000
18,000
54,000
9,000
768,000
70,000
720,000
1,124,000
1,452,000
2,054,000
(589,000)
0
951,000
25,000
4,786,000
246,000
246,000
1,848,000
1,700,000
300,000
938,000
4,786,000
P6-36A Fully Adjusted Equity Method

a. Adjusted trial balance:
Item
Cash
Accounts Receivable
Inventory
Investment in Sharp
Company Stock
Cost of Goods Sold
Depreciation and Amortization
Other Expenses
Dividends Declared
Accumulated Depreciation
Accounts Payable
Bonds Payable
Bond Premium
Common Stock
Additional Paid-In Capital
Retained Earnings
Sales
Other Income
Income from Subsidiary
Randall Corporation
Debit
Credit
Sharp Company
Debit
Credit
$ 130,300
80,000
170,000
600,000
$ 10,000
70,000
110,000
400,000
304,000
416,000
30,000
24,000
50,000
202,000
20,000
18,000
25,000
$ 310,000
100,000
300,000
$120,000
15,200
100,000
4,800
100,000
20,000
215,000
250,000
30,000
200,000
$1,804,300
345,900
500,000
20,400
28,000
$1,804,300
$855,000
b.
32,000
32,000

Cash
20,000
20,000
Record Randall Corp.'s 80% share of Sharp Co.'s 20X7 dividend

4,000
4,000
6-83
$855,000
P6-36A (continued)
c.
NCI
20%
Randall
Corp.
80%
Commo
n
Stock
Add. Paidin Capital
Retained
Earning
s
Original book value

+ Net Income
- Dividends
67,000
8,000
(5,000)
268,000
32,000
(20,000)
100,000
20,000
215,000
40,000
(25,000)
Ending book value
70,000
280,000
100,000
20,000
230,000
Downstream Reversal
Upstream Reversal
Total
Total
2,000
8,000
(3,000)
(10,000)
Randall
Corp.'s
share
2,000
6,400
(3,000)
(8,000)
(3,000)
(2,600)
NCI's share
1,600
(2,000)
(400)

Common stock
Retained earnings
Dividends declared
100,000
20,000
215,000
32,000
7,600
Ending balance

Randall Corp.s % of NI
25,000
280,000
69,600

NCI
Randall Corp.
+
20%
80%
Beginning balance
Changes
100% of Sharp Co.'s dividends

Net book value
Buildings &
equipment
Acc. Depr.
7,000
(1,000)
28,000
(4,000)
50,000
(15,000)
(5,000)
6,000
24,000
50,000
(20,000)
6-84
P6-36A (continued)
5,000
4,000
1,000

50,000
20,000
24,000
6,000

Accounts payable
Accounts receivable
10,000
10,000

40,000
40,000

Retained earnings
Cost of Goods Sold
8,400
1,600
10,000

Sales
Cost of Goods Sold
Inventory
57,000
44,000
13,000
(See Problem 6-34 for unrealized profit calculations.)
6-85
P6-36A (continued)
d.
Randall
Corp.
Sharp
Co.
500,000
20,400
(416,000)
250,000
30,000
(202,000)
57,000
(30,000)
(24,000)
28,000
78,400
(20,000)
(18,000)
5,000
40,000
32,000
94,000
7,600
4,000
58,000
1,000
(55,000)
(42,000)
0
82,400
(6,600)
78,400
40,000
101,600
59,000
75,800

Beginning Balance
345,900
215,000
Net Income
Ending Balance
78,400
(50,000)
374,300
40,000
(25,000)
230,000
215,000
8,400
101,600
130,300
80,000
170,000
600,000
(310,000)
304,000
10,000
70,000
110,000
400,000
(120,000)
50,000
40,000
Total Assets
974,300
470,000
90,000
Accounts Payable
Bonds Payable
Bond Premium
Common Stock
Retained Earnings
100,000
300,000
10,000
374,300
15,200
100,000
4,800
100,000
20,000
230,000
974,300
470,000
Income Statement
Sales
Other Income
Less: COGS
NCI in Net Income
Income
Balance Sheet
Cash
Accounts Receivable
Inventory
200,000
6-86
Elimination Entries
DR
CR
44,000
10,000
325,000
100,000
20,000
325,000
1,600
456,600
Consolidated
693,000
50,400
(564,000)
337,500
59,000
25,000
84,000
10,000
13,000
40,000
20,000
280,000
24,000
387,000
84,000
69,600
6,000
159,600
75,800
(50,000)
363,300
140,300
140,000
267,000
1,010,000
(410,000)
0
1,147,300
105,200
400,000
4,800
200,000
0
363,300
74,000
1,147,300
P6-37A Cost Method

a.
20,000
20,000

b.
Investment elimination entry:
Common stock
Retained earnings
100,000
20,000
180,000
240,000
60,000
Dividend elimination entry:

Dividend Income
Dividends Declared
20,000
5,000
25,000

50,000
40,000
10,000
Amortize differential from previous years:

Retained earnings
12,000
3,000
15,000
Amortize differential for 20X7

Depreciation Expense
5,000
5,000
Assign Sharp's undistributed income to NCI

Retained Earnings
1,600
7,000
8,600
6-87
P6-37A (continued)
Accounts payable
Accounts receivable
10,000
10,000

40,000
40,000

Retained Earnings
Cost of Goods Sold
8,400
1,600
10,000

Sales
Cost of Goods Sold
Inventory
57,000
44,000
13,000
(See Problem 6-34 for unrealized profit calculations.)
6-88
P6-37A (continued)
Randall
Corp.
Income Statement
Sales
Other Income
Dividend Income
Less: COGS
Sharp
Co.
57,000
(416,000)
250,000
30,000
20,000
(202,000)
(30,000)
(24,000)
50,400
(20,000)
(18,000)
60,000
5,000
50,400

Beginning Balance
Net Income
Ending Balance

NCI in Net Income of Sharp Co.
Income
Balance Sheet
Cash
Accounts Receivable
Inventory
500,000
20,400
Elimination Entries
DR
CR
20,000
10,000
44,000
82,000
5,000
1,600
54,000
60,000
88,600
54,000
329,900
215,000
50,400
(50,000)
330,300
60,000
(25,000)
250,000
180,000
8,400
12,000
7,000
88,600
130,300
80,000
170,000
600,000
(310,000)
10,000
70,000
110,000
400,000
(120,000)
296,000
50,000
40,000
280,000
Total Assets
950,300
470,000
90,000
Accounts Payable
Bonds Payable
Bond Premium
Common Stock
Retained Earnings
100,000
300,000
10,000
330,300
15,200
100,000
4,800
100,000
20,000
250,000
930,300
490,000
200,000
6-89
100,000
20,000
296,000
1,600
3,000
430,600
Consolidated
693,000
50,400
0
(564,000)
(55,000)
(42,000)
82,400
(6,600)
75,800
337,500
54,000
25,000
79,000
10,000
13,000
40,000
5,000
15,000
240,000
40,000
363,000
79,000
60,000
10,000
8,600
157,600
75,800
(50,000)
363,300
140,300
140,000
267,000
1,010,000
(410,000)
0
1,147,300
105,200
400,000
4,800
200,000
0
363,300
74,000
1,147,300

Chapter 06 - Intercompany Inventory Transactions

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Chapter 06 - Intercompany Inventory Transactions

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Chapter 06 - Intercompany Inventory Transactions