Test bank advanced accounting 10e by beams chapter 05

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Chapter 5 Test Bank
INTERCOMPANY PROFIT TRANSACTIONS – INVENTORIES

Multiple Choice Questions

LO1
1.

The material sale of inventory items by a parent company to an
affiliated company
a. enters the consolidated revenue computation only if the
transfer was the result of arm’s length bargaining.
b. affects consolidated net income under a periodic inventory
system but not under a perpetual inventory system.
c. does
not
result
in
consolidated
income
until
the
merchandise is sold to outside parties.
d. does not require a working paper adjustment if the
merchandise was transferred at cost.

LO1
2.

Honeyeater Corporation owns a 40% interest in Nectar Company,
acquired several years ago at a cost equal to book value and
fair value. Nectar sells merchandise to Honeyeater for the
first time in 2005. In computing income from the investee for
2005 under the equity method, Honeyeater uses which equation?
a. 40% of Nectar’s income less 100% of the unrealized profit
in Honeyeater's ending inventory.
b. 40% of Nectar’s income plus 100% of the unrealized profit
in Honeyeater's ending inventory.
c. 40% of Nectar’s income less 40% of the unrealized profit in
Honeyeater’s ending inventory.
d. 40% of Nectar’s income plus 40% of the unrealized profit in
Honeyeater’s ending inventory.

LO1
3.

In situations where there are routine inventory sales between
parent
companies
and
subsidiaries,
when
preparing
the
consolidation statements, which of the following line items is
indifferent to the sales being either upstream or downstream?
a.
b.
c.

d.

Consolidated retained earnings.
Consolidated gross profit.
Noncontrolling interest expense.
Consolidated net income.
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LO2
4.

The consolidation procedures for intercompany
similar for upstream and downstream sales

sales

are

a. if the merchandise is transferred at cost.
b. under a periodic inventory system but not under a perpetual
inventory system.
c. if the merchandise is immediately sold to outside parties.
d. when the subsidiary is 100% owned.
Use the following information to answer questions 5 through 9.
Eagle Corporation owns 80% of Flyway Inc.’s common stock that
was purchased at its underlying book value. The two companies

report the following information for 2004 and 2005.
During 2004, one company sold inventory to the other company
for $50,000 which cost the transferor $40,000. As of the end of
2004, 30% of the inventory was unsold. In 2005, the remaining
inventory was resold outside the consolidated entity.

2004 Selected Data:
Sales Revenue
Cost of Goods Sold
Other Expenses
Net Income

$

$

Dividends Paid

2005 Selected Data:
Sales Revenue
Cost of Goods Sold
Other Expenses
Net Income

Dividends Paid
LO2
5.

$

$

Eagle
600,000
320,000
100,000
1800,000

$

$

Flyway
320,000
155,000
89,000
76,000

19,000

0

Eagle
580,000
300,000
130,000
150,000

Flyway
445,000

180,000
171,000
94,000

16,000

$

$

5,000

If the sale referred to above was a downstream sale, the total
sales revenue reported in the consolidated income statement for
2004 would be?
a.
b.
c.
d.

$870,000.
$880,000.
$920,000.
$970,000.
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LO2
6.

If the sale referred to above was a downstream sale, by what
amount must Inventory be reduced to reflect the correct balance
as of the end of 2004?
a.
b.
c.
d.

LO2
7.

For 2004, consolidated net income will be what amount if the
intercompany sale was downstream?
a.
b.
c.
d.

LO2
8.

$475,600.
$476,800.
$486,400.
$506,000.

If the intercompany sale mentioned above was an upstream sale,

what will be the reported amount of total sales revenue for
2005?
a.
b.
c.
d.

LO2
9.

$ 3,000.
$10,000.
$14,000.
$20,000.

$1,025,000.
$1,900,000.
$1,950,000.
$2,000,000.

If the intercompany sale was an upstream sale, the total amount
of consolidated cost of goods sold for 2005 will be?
a.
b.
c.
d.

$300,000.
$430,000.
$470,000.

$477,000.

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Use the following information to answer questions 9 and 10.
Duck Corporation acquired a 70% interest in Whistle Corporation
on January 1, 2005, when Whistle’s book values were equal to
their fair values. During 2005, Duck sold merchandise that cost
$75,000 to Whistle for $110,000. On December 31, 2005, threefourths of the merchandise acquired from Duck remained in
Whistle’s inventory. Separate incomes (investment income not
included) of Duck and Whistle are as follows:
Duck
Sales Revenue
Cost of Goods Sold
Operating Expenses
Separate incomes

LO3
10.

$

150,000
90,000
12,000
48,000

$

$

200,000
70,000
15,000
115,000

The consolidated income statement for Duck Corporation and
subsidiary for the year ended December 31, 2005 will show
consolidated cost of sales of?
a.
b.
c.
d.

LO3
11.

$

Whistle

$ 50,000.
$ 76,250.
$133,750.
$160,000.

Duck’s income from Whistle for 2005 is?
a.
b.
c.
d.

$54,250.
$56,000.
$62,125.
$80,500.

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LO3
12.

Pond Co. a 55%-owned subsidiary of Goose Inc. made
following entry to record a sale of merchandise to Goose:
Accounts Receivable
Sales Revenue

the

60,000
60,000

All Pond sales are at 125% of cost. One-third of this
merchandise remained in the Goose’s inventory at year-end. A
working paper entry to eliminate unrealized profits from
consolidated inventory would include a credit to Inventory in
the amount of
a.
b.
c.
d.

$ 4,000.
$ 5,000.
$ 8,000.
$10,000.

Use the following information to answer questions 13, 14, and
15.
Wren Corporation acquired 80% ownership of Arid Incorporated,
at a time when Wren’s investment (using the equity method) and
Arid’s book values were equal. During 2005, Wren sold goods to
Arid for $200,000 making a gross profit percentage of 20%.
Half of these goods remained unsold in Arid’s inventory at the
end of the year.
Income statement information for Wren and
Arid for 2005 were as follows:

Sales Revenue
Cost of Goods Sold
Operating Expenses
Separate incomes

LO3
13.

$

$

Wren
1,000,000
500,000
500,000
250,000

$

$

Arid
600,000
400,000
80,000
120,000

The 2005 consolidated income statement showed cost of goods
sold of
a.
b.
c.
d.

$720,000.
$880,000.
$900,000.
$920,000.

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LO3
14.

The 2005 consolidated income statement showed income from Arid
of
a.
b.
c.
d.

LO3
15.

The 2005 consolidated income statement showed noncontrolling
income of
a.
b.
c.
d.

LO4
16.

$56,000.
$76,000.
$80,000.
$96,000.

$ 2,000.
$ 8,000.
$20,000.
$24,000.

On January 1, 2004, Darter Industries acquired an 80% interest
in Thermal Company to insure a steady supply of Thermal’s
inventory that Darter uses in its own manufacturing businesses.
Thermal sold 100% of its output to Darter during 2004 and 2005
at a markup of 120% of Thermal’s cost. Darter had $9,600 of
these items remaining in its January 1, 2005 inventory and no
items on December 31, 2005. If Darter neglected to eliminate
unrealized profits from all intercompany sales from Thermal,
consolidated net income for 2005 was
a.
b.
c.
d.

overstated by $320.
understated by $400.

overstated by $2,400.
unaffected because Darter buys 100% of Thermal’s output.

Use the following information for questions 17 and 18:
Grebe Company routinely receives goods from its 80%-owned subsidiary,
Swamp Corporation. In 2004, Swamp sold merchandise that cost $80,000
to Grebe for $100,000. Half of this merchandise remained in Grebe’s
December 31, 2004 inventory. During 2005, Swamp sold merchandise that
cost $160,000 to Grebe for $200,000. $62,500 of the 2005 merchandise
inventory remained in Grebe’s December 31, 2005 inventory. Selected
income statement information for the two affiliates for the year 2005
was as follows:
Grebe
Swamp
Sales Revenue
$500,000
$400,000
Cost of Goods Sold
400,000
320,000
Gross profit
$100,000
$ 80,000

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LO4
17.

Consolidated cost of goods sold for Grebe and Subsidiary for
2005 were
a.
b.
c.
d.

LO4
18.

What amount of unrealized profit did Grebe Company have at the
end of 2004?
a.
b.
c.
d.

LO5
19.
3.

$512,000.
$526,000.
$522,500.
$528,000.

$10,000.

$12,500.
$50,000.
$62,500.

A parent company regularly sells merchandise to its 70%-owned
subsidiary. Which of the following statements describes the
computation of minority interest income?
a. The subsidiary’s net income times 30%.
b. (The subsidiary’s net income x 30%) + unrealized profits in
the beginning inventory – unrealized profits in the ending
inventory.
c. (The subsidiary’s net income + unrealized profits in the
beginning inventory – unrealized profits in the ending
inventory) x 30%.
d. (The subsidiary’s net income + unrealized profits in the
ending inventory – unrealized profits in the beginning
inventory) x 30%.

LO5
20.

Squid
Corporation,
a
90%-owned
subsidiary
of
Penguin
Corporation, sold inventory items to its parent at a $24,000
profit in 2005. Penguin resold one-third of this inventory to

outside entities. Squid reported net income of $100,000 for
2005. Minority interest income that will appear in the
consolidated income statement for 2005 is
a.
b.
c.
c.

$ 8,400.
$ 9,200.
$10,000.
$10,800.

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LO3
Exercise 1
Petrel Corporation acquired a 60% interest in Salt Corporation on
January 1, 2005, at a cost equal to book value and fair value. Salt
reports net income of $880,000 for 2005. Petrel regularly sells
merchandise to Salt at 120% of Petrel’s cost. The intercompany sales
information for 2004 is as follows:
Intercompany sales at selling price
Value of merchandise remaining
unsold by Salt

$ 672,000
132,000

Required:
1. Determine the unrealized profit in Salt’s inventory at December
31, 2004.
2. Compute Petrel’s income from Salt for 2005.
LO3&4
Exercise 2
Frigatebird Co. bought 75% of the outstanding voting stock of Cliff
Corporation at book value several years ago. Frigatebird sells
merchandise to Cliff at 125% above Frigatebird’s cost. Intercompany
sales from Frigatebird to Cliff for 2005 were $650,000. Unrealized
profits in Cliff’s December 31, 2004 inventory and December 31, 2005
inventory were $27,000 and $38,000, respectively. Cliff reported net
income of $900,000 for 2005.
Required:
1. Determine Frigatebird’s income from Cliff for 2005.
2. In General Journal format, prepare consolidation working paper
entries to eliminate the effects of the intercompany inventory
sales assuming the perpetual inventory method is used.

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LO3&4
Exercise 3

Tern Corporation acquired an 80% interest in Harbor Corporation
several years ago when Harbor’s book values and fair values were
equal. Separate company income statements for Tern and Harbor for the
year ended December 31, 2005 are summarized as follows:

Sales Revenue
Income from Harbor
Cost of Goods Sold
Expenses
Net Income

$
(
(
$

Tern
1,000,000 $
80,000
600,000 )(
200,000 )(
280,000 $

Harbor
600,000
300,000 )
200,000 )
100,000

During 2004 Tern sold merchandise that cost $120,000 to Harbor for

$180,000. Half of this merchandise remained in Harbor’s inventory at
December 31, 2004. During 2005, Tern sold merchandise that cost
$150,000 to Harbor for $225,000. One-third of this merchandise
remained in Harbor’s December 31, 2005 inventory.
Required:
Prepare a consolidated
Subsidiary for 2005.

income

statement

for

Tern

Corporation

and

LO3&4
Exercise 4
Egret Corporation acquired an 80% interest in Tick Corporation at
book value in 2004. During 2005, Egret sold $148,000 of merchandise
to Tick at 160% of Egret’s cost. Tick’s beginning and ending
inventories for 2005 were $38,000 and $44,000, respectively. Income
statement information for both companies for 2005 is as follows:

Sales Revenue
Income from Tick

Cost of Goods Sold
Expenses
Net Income

$
(
(
$

Egret
330,000 $
30,400
190,000 )(
65,000 )(
105,400 $

Tick
180,000
112,000 )
30,000 )
38,000

Required:
Prepare a consolidated income statement for Egret Corporation and
Subsidiary for 2005.

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LO4
Exercise 5
Ibis Corporation acquired 100% of Lake Co. common stock on January 1,
2003, for $550,000 when the book values of Lake’s assets and
liabilities were equal to their fair values and Lake’s stockholders’
equity consisted of $280,000 of Capital Stock and $270,000 of
Retained Earnings.
Ibis’ separate income (excluding Lake) was $900,000, 850,000 and
950,000 in 2003, 2004 and 2005 respectively. Ibis sold inventory to
Lake during 2003 at a gross profit of $40,000 and 30 percent remained
at Lake at the end of the year. The remaining 30 percent was sold in
2004.
At the end of 2004, Ibis has $25,000 of inventory received
from Lake from a sale of $200,000 which cost Lake $160,000. There are
no unrealized profits in the inventory of Ibis or Lake at the end of
2005.
Ibis uses the equity method in its separate books. Select
financial information for Lake follows:

Sales
Cost of Sales
Gross Profit
Operating Expenses
Net Income

$

2003

800,000
420,000
380,000
300,000
80,000

$

2004
850,000
440,000
410,000
320,000
90,000

$

2005
950,000
500,000
450,000
380,000
70,000

Required:
Prepare a schedule to determine Ibis Corporation’s net income for 2003,
2004, and 2005.

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LO3&4
Exercise 6
Bittern Corporation acquired a 70% interest in Reed Corporation at
book value several years ago. Reed purchases its entire inventory
from Bittern at 140% of Bittern’s cost. During 2005, Bittern sold
$160,000 of merchandise to Reed. Reed’s beginning and ending
inventories for 2005 were $49,000 and $33,600, respectively. Income
statement information for both companies for 2005 is as follows:

Sales Revenue
Income from Reed
Cost of Goods Sold
Expenses
Net Income

$
(
(
$

Reed
220,000

Bittern
400,000 $
75,600

210,000 )(
85,000 )(
180,600 $

72,000 )
40,000 )
108,000

Required:
Prepare a consolidated income statement for Bittern Corporation and
Subsidiary for 2005.

LO 3&4
Exercise 7
Egret Corporation paid $24,800 for an 80% interest in Plume
Corporation on January 1, 2004, at which time Plume’s stockholders’
equity consisted of $15,000 of Common Stock and $6,000 of Retained
Earnings. The fair values of Plume Corporation’s assets and
liabilities were identical to recorded book values when Egret
acquired its 80% interest.
Plume Corporation reported net income of $4,000 and paid dividends of
$2,000 during 2004.
Egret Corporation
as follows:

sold inventory items to Plume during 2004 and 2005

Egret’s sales to Plume
Egret’s cost of sales to Plume
Unrealized profit at year-end

The accounts payable
inventory purchases.

of

Plume

$

2004
5,000
3,000
1,000

include

$1,500

$

2005
6,000
3,500
1,500

owed

to

Egret

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The following conversion to equity schedule provides information that
may be helpful in completing the consolidation working papers for the
year ended December 31, 2005.

Retained
Earnings

Investment
in Plume

Income
from
Plume

Prior years:
Inventory profit

$ (

1,000 )

$( 1,000 )

1,000 )

$ 1,000
$( 1,500 )
$( 1,500 )

Current year:
Inventory profit-2004
Inventory profit-2005
Totals

$
$
$ (

$ 1,000
$(1,500 )
$( 500 )

Required:
Financial statements of Egret and Plume appear in the first two
columns of the partially completed working papers. Complete the
consolidation working papers for Egret Corporation and Subsidiary for
the year ended December 31, 2005.

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Egret Corporation and Subsidiary
Consolidation Working Papers
for the year ended December 31, 2005
Eliminations
Egret
Plume
Debit
Credit
INCOME STATEMENT
Sales
$
Income from
Plume

43,000

$20,000

7,200

Cost of Sales

( 22,000) (

8,000)

Other expenses
Net income

( 12,200) (
16,000

3,000)
9,000

Retained
Earnings 1/1
Add:
Net income
Less:
Dividends
Retained
Earnings 12/31
BALANCE SHEET
Cash
Accounts
Receivable-net
Dividend
Receivable

10,000

8,000

16,000

9,000

( 10,000) (
$

Inventories
Goodwill
Equipment and
Buildings-net
Investment in
Plume
TOTAL ASSETS
$
LIAB. & EQUITY
Accounts payable
Dividend payable
Other debt
Capital stock
Retained
Earnings
1/1 Noncontrl.
Interest
12/31 Noncontrl.
Interest
$
LIAB. & EQUITY

Balance
Sheet

5,000)

16,000

$12,000

5,400

3,000

14,000

10,000

2,000
18,000

8,000

24,000

31,000

29,600
93,000

$52,000

17,500
7,000

12,500
40,000

12,500
2,500
10,000
15,000

16,000

12,000

93,000

$52,000

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LO4
Exercise 8
Cardinal Corporation acquired a 90% interest in Robin Corporation at
book value in 2004. During 2005, Cardinal sold $220,000 of
merchandise to Robin at a gross profit rate of 30%. Robin’s beginning
and
ending
inventories

for
2005
were
$30,000
and
$40,000,
respectively. Income statement information for both companies for
2005 is as follows:

Sales Revenue
Income from Robin
Cost of Goods Sold
Expenses
Net Income

$
(
(
$

Cardinal
830,000 $
36,900
530,000 )(
179,000 )(
157,900 $

Robin
290,000
197,000 )

52,000 )
41,000

Required:
Prepare a consolidated income statement for Cardinal Corporation and
Subsidiary for 2005.
LO5
Exercise 9
Plover Corporation acquired 80% of Artic Inc. equity on January 1,
2003, when the book values of Artic’s assets and liabilities were
equal to their fair values.
Plover separate income (excluding Artic) was $1,800,000, 1,700,000
and 1,900,000 in 2003, 2004 and 2005 respectively. Plover sold
inventory to Artic during 2003 at a gross profit of $48,000 and one
quarter remained at Artic at the end of the year. The remaining 25
percent was sold in 2004. At the end of 2004, Plover has $25,000 of
inventory received from Artic from a sale of $100,000 which cost
Artic $80,000. There are no unrealized profits in the inventory of
Plover or Artic at the end of 2005. Plover a uses the equity method
in its separate books. Select financial information for Artic
follows:

Sales
Cost of Sales
Gross Profit
Operating Expenses
Net Income

$

2003
790,000
420,000
370,000
300,000
70,000

$

2004
840,000
440,000
400,000
320,000
80,000

$

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2005
940,000
500,000
440,000
350,000
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Required:
Prepare a schedule to determine Plover Corporation’s net income for
2003, 2004, and 2005.
LO5
Exercise 10
On January 1, 2004, Lapwing Corporation purchased 70% of the common
stock of Forage Corporation for $320,000 when Forage had Common Stock
outstanding of $100,000 and Retained Earnings of $200,000. Any excess
differential was attributed to goodwill.
At the end of 2004, Lapwing and Forage had unrealized inventory
profits from intercompany sales of $6,000 and $8,000, respectively.
These year-end profit amounts were realized in 2005. At the end of
2005 Lapwing held inventory acquired from Forage with a $10,000
unrealized profit. Lapwing reported separate income of $100,000 for
2005 and paid dividends of $30,000. Forage reported separate income
of $70,000 for 2005 and paid dividends of $20,000.
Required:
Compute the amount of consolidated net income for 2005.

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SOLUTIONS
Multiple Choice Questions
1.

c

2.

c

3.

b

4.

d

5.

a

6.

a

7.

b

8.

a

9.

d

2004 combined sales
Less: 2004 intercompany
sales
Consolidated sales

$920,000
(

Selling price
Less: Cost of sales
Original unrealized profit
Unsold percentage
Unrealized profit

Combined 2005 sales
Less: 2005 intercompany
sales
Consolidated sales
Combined cost of sales
Less: 2005 intercompany
sales
Less: Unrealized profit in
the 2005 beginning inventory from 2004
Plus: Unrealized profit in
2005 ending inventory
Consolidated cost of sales

50,000 )
$870,000
$

$

50,000
40,000
10,000
30%
3,000

$

1,025,000

$

0
1,025,000
$

480,000
0

(

$

3,000 )
0
477,000

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10.

b

Combined cost of sales
Less: Intercompany sales revenue
Plus: Unrealized profit taken out
of inventory (75%)x(35,000)
=
Consolidated cost of sales

11.

a

($115,000 x 70%) - $26,250

12.

a

Selling price
Less: Cost of sales
Unrealized profit
Unsold fraction
Credit to Inventory

13.

a

500,000+400,000200,000+20,000

14.

b

120,000*.8-200,000*.2*.5

15.

d

Downstream situation

16.

a

It will be

amount of the
share of the
margin in the
carried over
$1,600) =

17.

18.

c

=

$
(

$
$

160,000
110,000 )
26,250
76,250
54,250

$
(

$

60,000
48,000 )
12,000
1/3
4,000

overstated by the
minority interests’
$1,600 of profit
$9,600 of materials
to 2005 = (20% x

Grebe plus Swamp’s separate cost
of goods sold = $400,000
+ $320,000 =
Less: Intercompany sales
=
Adjust: Profit +12,500-10,000
=
Consolidated COGS
=

$

$
(
$

320

720,000
200,000 )
2,500
522,500 )

b
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19.

a

20.

a

Minority interest income:
Squid’s reported income
Less: Unrealized profits in the
ending inventory
Squid’s adjusted income
Minority interest percentage
Minority interest income

$

(
$
$

100,000
16,000 )
84,000
10%
8,400

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Exercise 1
Requirement 1
Unrealized profit in inventory:
$132,000 – ($132,000/1.2) =

$

22,000

Requirement 2
Income from Salt for 2005:
Share of Salt’s income ($880,000 x 60%)
Less: Unrealized profit in ending inventory
Income from Salt

$
(
$

528,000
22,000 )
506,000

Exercise 2
Requirement 1
Income from Cliff:
Share of Cliff’s reported net income
$900,000 x 75% =
Add: Unrealized profit in beginning inventory
Less: Unrealized profit in ending inventory
Income from Cliff

$
(
$

675,000
27,000
38,000 )
664,000 )

Requirement 2

Sales Revenue

Cost of Goods Sold

Debit
650,000

Credit
650,000

To eliminate intercompany sales and purchases
Investment in Cliff
Cost of Goods Sold

27,000
27,000

To recognize previously deferred unrealized profits from the
beginning inventory
Cost of Goods Sold
Inventory

38,000
38,000

To eliminate intercompany profit in the ending inventory from cost of
goods sold and inventory
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Exercise 3
Tern Corporation and Subsidiary
Consolidated Income Statement
for the year ended December 31, 2005
Sales (combined $1,600,000 - $225,000 intercompany
Cost of Goods Sold (see below)
Expenses
Minority Interest
Consolidated net income
Consolidated cost of goods sold computation:
Combined cost of sales ($600,000 + $300,000)
Less: Intercompany sales
Less: Unrealized profit in beginning inventory
($180,000 - $120,000) x 1/2
Add: Unrealized profit in ending inventory
($225,000 - $150,000) x 1/3
Consolidated Cost of Goods Sold

$
(
(
(
$

1,375,000
670,000)
400,000)
20,000)
285,000

$
(

900,000
225,000)

(

30,000)

$

25,000
670,000

$
(
(
(
$

362,000
156,250)
95,000)
7,600)
103,150

$
(

302,000
148,000)

(

14,250)

Exercise 4
Egret Corporation and Subsidiary
Consolidated Income Statement
for the year ended December 31, 2005
Sales (combined $330,000 + $180,000 - $148,000)
Cost of Goods Sold (see below)
Expenses
Minority Interest
Consolidated net income
Consolidated cost of goods sold computation:
Combined cost of sales ($190,000 + $112,000)
Less: Intercompany sales
Less: Unrealized profit in beginning inventory
($38,000 – ($38,000/1.6)
Add: Unrealized profit in ending inventory
($44,000 – ($44,000/1.6)
Consolidated Cost of Goods Sold

$

16,500
156,250

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Exercise 5

Ibis’s separate income
Add: Lake’s reported net income
Unrealized profit in 2003 income
Unrealized profit in 2004 income

2003
2004
$ 900,000
$ 850,000
$
80,000
90,000
( 12,000 )
12,000
(
5,000 )

Consolidated net income

$ 968,000

$ 947,000

2005
950,000
70,000
5,000

$ 1,025,000

Exercise 6
Preliminary computations:
Unrealized profit in beginning inventory equals:
$49,000 – ($49,000/1.4) =

$

14,000

Unrealized profit in ending inventory:
$33,600 – ($33,600/1.4) =

$

9,600

Consolidated net income:
Sales (combined $620,000 - $160,000 intercompany
Cost of Goods Sold (see below)
Expenses
Minority Interest

Consolidated net income

$
(
(
(
$

460,000
117,600)
125,000)
32,400)
185,000

$
(
(

282,000
160,000)
14,000)
9,600
117,600

Consolidated cost of goods sold computation:
Combined cost of sales ($210,000 + $72,000)
Less: Intercompany sales
Less: Unrealized profit in beginning inventory
Add: Unrealized profit in ending inventory
Consolidated Cost of Goods Sold

$

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Exercise 7
Egret Corporation and Subsidiary
Consolidation Working Papers
for the year ended December 31, 2005
Eliminations
Egret
Plume
Debit
Credit
INCOME STATEMENT
Sales
$
Income from
Plume

43,000

$20,000

7,200

b
a
e
d

Cost of Sales
(
Other expenses
(
Minority income
Net income
Retained
Earnings 1/1
Add: Net income
Less: Dividends
(
Retained
Earnings 12/31
$
BALANCE SHEET
Cash
Net Receivables
Dividend
Receivable
Inventories
Goodwill
Plant assets-net
Investment in
Plume

22,000) (
12,200) (

8,000)
3,000)

16,000

9,000

10,000
16,000
10,000) (

a
8,000 f
9,000
5,000)

TOTAL ASSETS
$
LIAB. & EQUITY
Accounts payable
Dividend payable
Other debt
Capital stock
Retained
Earnings
1/1 Noncntrl.
Interest

12/31 Noncntrl.
Interest
TOTAL LIAB. &
EQUITY

93,000

$52,000

17,500
7,000
12,500
40,000

12,500
2,500
10,000
15,000

16,000

12,000

$6,000
500
6,700
1,500

NonCntrl.

Balance
Sheet
$57,000

b
c

6,000
1,000

1,000
8,000
e

4,000

( 24,500)
( 15,200)
1,800 ( 1,800)
15,500
9,000
15,500
(1,000) ( 10,000)

16,000

$12,000

$14,500

5,400
14,000

3,000
10,000

h

1,500

8,400
22,500

8,000

g
d

2,000
1,500

a
e
f

1,500
2,700
26,400

2,000

18,000
24,000

f

8,000

c

1,000

24,500
8,000
55,000

31,000

29,600

$118,400
h
g

1,500
2,000

f

15,000

28,500
7,500
22,500
40,000
14,500
f

4,600

4,600

5,400
$93,000

$52,000

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$118,400


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Exercise 8
Cardinal Corporation and Subsidiary
Consolidated Income Statement
for the year ended December 31, 2005
Sales (combined $830,000 + $290,000 - $220,000)

Cost of Goods Sold (see below)
Expenses
Minority Interest
Consolidated net income
Consolidated cost of goods sold computation:
Combined cost of sales ($530,000 + $197,000)
Less: Intercompany sales
Less: Unrealized profit in beginning inventory
($30,000 x .30)
Add: Unrealized profit in ending inventory
($40,000 x .30)
Consolidated Cost of Goods Sold

$
(
(
(
$

900,000
510,000)
231,000)
4,100)
154,900

$
(

727,000
220,000)

(

9,000)

$

12,000
510,000

Exercise 9

Plover’s separate income
Add: Artic’s net income
Unrealized profit in 2003
income
Unrealized profit in 2004
income
Subtract:
Noncontrolling
Interest
Consolidated net income

$
(

2003
2004
1,800,000
$ 1,700,000

70,000
80,000
12,000 )
12,000
(

(
$

14,000 ) (
1,844,000

2005
$ 1,900,000
90,000

5,000 )

5,000

15,000 ) (

$ 1,772,000

17,000 )

$ 1,978,000

2004 Noncontrolling Interest
=(80,000-5,000)*.2

2005 Noncontrolling Interest
=(90,000+5,000)*.2

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Exercise 10
Lapwing separate income:
Add: Realized profit in beginning
inventory (given)
Less: Unrealized profit in ending
inventory (given)

$

(

10,000 )

Lapwing adjusted separate income

$

96,000

$

54,600
150,600

Forage separate income:
Separate income as reported
Add: Realized beginning inventory profit
Equals: Adjusted Forage income
Majority percentage
Income from Forage
Consolidated net income

100,000
6,000

$

70,000
8,000
78,000
70%
54,600

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