Question

In: Accounting

On January 1st 2000 Froto Company acquired 100% of the voting stock of Bilbo Company at...

On January 1st 2000 Froto Company acquired 100% of the voting stock of Bilbo Company at book value.

Froto uses the initial value method (cost) and Bilbo doesn't pay any dividends.

On October 1st 2020 Froto sold some merchandise (inventory) to Bilbo company for $1,000,000 credit

the inventory had cost Bilbo $600,000. Both Bilbo and Froto use the perpetual inventory method.

During 2020 Bilbo had sold 70% of the merchandise acquired from Froto for $750,000 but had not paid off Froto

During 2021 Bilbo sold the remaining merchandise for $325,000 and paid off Froto

In 2020 Froto (unconsolidated) reported income of $1,000,000 and Bilbo reported income of $40,000

In 2021 Froto (unconsolidated) reported income of $1,200,000 and Bilbo reported income of $77,000.

REQUIRED:
A)Make Froto's journal entry when it sells the merchandise to Bilbo in 2020
B) make Bilbo's journal entry when it buys the merchandise from Froto in 2020
c) make any necessary worksheet entries in 2020
d) determine consolidated income for 2020
e) make any necessary worksheet entries in 2021
f) make any necessary worksheet entries in 2021
g) determine consolidated income for 2021

Solutions

Expert Solution

A) Make Froto's journal entry when it sells the merchandise to Bilbo in 2020
Dr Amount Cr Amount
Oct 1 Bilbo company 10,00,000
To Sale                  10,00,000
(Being Sale made to Bilbo)
B) make Bilbo's journal entry when it buys the merchandise from Froto in 2020
Purchase (Cost of Goods Sold)        10,00,000
To Froto Company                  10,00,000
(Being Purchase made by Bilbo)
C) make any necessary worksheet entries in 2020
Books of Froto
Year General Ledger Debit Credit
2020 Accounts receivable 10,00,000
Sale 10,00,000
2020 Cost of Goods sold          6,00,000
To Inventory                    6,00,000
Books of Bilbo
2020 Purchase        10,00,000
To Accounts Payable                  10,00,000
Invenotry        10,00,000
To Cost of Goods sold                  10,00,000
2020 Accounts receivable          7,50,000
Sale                    7,50,000
Cost of Goods sold          7,00,000
To Inventory

                   7,00,000
D) determine consolidated income for 2020 (Profit Amount $)
Profit Earned by Bilbo                    4,00,000
(Sale price - cost of Purchase)
1000000-600000
Profit Earned by Froto                       50,000
(Sale price - cost of Purchase)
(750000- 700000 (70% of 1000000)
                   4,50,000

ekkarill92 answered 2 years ago
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