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In: Accounting

During 2018, Serenity Corp., a 90%-owned subsidiary, sold inventory to Patience, Inc. (its parent) for $800,000;...

During 2018, Serenity Corp., a 90%-owned subsidiary, sold inventory to Patience, Inc. (its parent) for $800,000; the inventory originally had cost Serenity $500,000. By the end of 2018, only one-fourth of the inventory had been resold to unrelated parties. For 2018, the two companies reported the following:

                Operating income of Patience (excluding       $900,000

        earnings from Serenity)

                Net income of Serenity                                       $500,000

                Total                                                                      $1,400,000

Think through, and maybe write out, for yourself, the elimination JE needed. Then answer the questions.

9.     What is the amount of the unrealized inter-company profit at the end of 2018?

a. $200,000                  b. $225,000                         c. $112,500                          d. $487,500

10. By what amount should inventory be reported in the December 31, 2018 consolidated balance sheet?

a. $375,000                  b. $275,000                         c. $500,000                          d. $600,000

11. By what amount should sales be adjusted in the 2018 consolidation worksheet as a result of the inter-company sale?

a. $500,000 increase                                  b. $300,000 decrease

c. $800,000 increase                                  d. $800,000 decrease

12. What adjustment to cost of goods sold should appear in the 2018 consolidation worksheet as a result of the inter-company sale?

a. $500,000 credit                       b. $187,500 credit

c. $575,000 credit                       d. $225,000 debit

13. The income assigned to the non-controlling interest for 2018, following the upstream sale of inventory, is:

a. $42,500.                   b. $50,000.                           c. $27,500.                           d. $30,000.

Solutions

Expert Solution

Cost of inventory for serenity $ 500,000
Sold to patience for $ 800,000
Inter group profit $ 300,000
Inventory sold to outsiders by patience 1/4th
Hence realised profit $    75,000
There for unrealised profit $ 225,000

Question 9 : Answer is b. ($225,000)

Inventory sold to outsiders by patience 1/4th
Inventory in Patience balance sheet $ 600,000 (800000*3/4)
Less : Unrealised profit $ 225,000
Hence inventory to be reported in consolidated balance sheet $ 375,000

Question 10 : Answer is a.($375,000)

Question 11 : Senerity sold goods for $800,000 to patience hence while preparing consolidation work sheet we have to eliminate $800,000 as inter commpany sales

Aswer is d. $800,000 decerase

COGS for serenity $ 500,000
COGS for patience $ 200,000 (800000*1/4)
Total $ 700,000
Actual COGS $ 125,000 (500000*1/4)
Hence we need to make credit adjustment for $ 575,000

Question 12 : Answer is c.($575,000)

Net Income of serenity $ 500,000
unrealised profit $ 225,000
Adjusted Income $ 275,000
Sahre of non controlling interest 10% $    27,500

Question 13 : Answer is c.($27,500)

ekkarill92 answered 2 years ago
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