ACCT108 Illustrative Problem 4

Intercompany Sales of Inventories

Intercompany Sales of Inventories between ABC Co. (Parent) and XYZ Co. (Subsidiary) are presented below:

Downstream Sales: 20X1 20X2 20X3 20X4 20X5

Price 2,400,000 3,900,000 6,250,000 9,600,000 11,250,000
Cost 2,000,000 3,000,000 5,000,000 8,000,000 9,000,000
Unsold at Year-End (@ Selling Price) 480,000 780,000 1,250,000 1,920,000 2,250,000

Upstream Sales: 20X1 20X2 20X3 20X4 20X5

Price 1,500,000 2,700,000 4,200,000 6,300,000 9,800,000
Cost 1,200,000 1,890,000 3,150,000 5,040,000 7,350,000
Unsold at Year-End (@ Selling Price) 300,000 540,000 840,000 1,260,000 1,960,000

Selected accounting information for the two companies are as follows:

ABC Company 20X1 20X2 20X3 20X4 20X5

Sales 24,000,000 39,000,000 62,500,000 96,000,000 112,500,000
Cost of Goods Sold 14,400,000 23,400,000 37,500,000 57,600,000 67,500,000
Net Income 5,280,000 8,580,000 13,750,000 21,120,000 24,750,000
Dividends Declared and Paid 1,584,000 2,574,000 4,125,000 6,336,000 7,425,000

XYZ Company 20X1 20X2 20X3 20X4 20X5

Sales 7,500,000 13,500,000 21,000,000 31,500,000 49,000,000
Cost of Goods Sold 4,875,000 8,775,000 13,650,000 20,475,000 31,850,000
Net Income 1,350,000 2,430,000 3,780,000 5,670,000 8,820,000
Dividends Declared and Paid 405,000 729,000 1,134,000 1,701,000 2,646,000

80% ownership interest in XYZ Company was acquired by ABC Company on January 1, 20X1 for a total
capitalizable cost of P25,000,000 when the book value of XYZ's net assets amounted to P25,000,000.
On the date of acquisition, the fair values of the identifiable assets and liabilities of XYZ were equal
to their fair values except for the following:
Book Value Fair Value Remaining Life
1. Inventory 600,000 400,000 All sold in 20X1
2. Equipment 810,000 910,000 4 years
3. Building 2,200,000 1,600,000 12 years
4. Land 3,400,000 5,100,000 Not Applicable

On January 1, 20X1, ABC Co. and XYZ Co. Retained Earnings amounted to P48,200,000 and
and P12,800,000, respectvely.

Required: Determine the following

1. Consolidated Sales 5. CNI-Controlling 8. NCI, 12/31 (@ fair value)
2. Consolidated Cost of Goods Sold 6. CNI-Total 9. NCI, 12/31 (@ proportionate share)
3. CINIS 7. CRE
4. NCINIS