Question

Prem Company acquired 60 percent ownership of Cooper Company's voting shares on January 1, 20X2. During 20X5, Prem purchased inventory for $20,000 and sold the full amount to Cooper Company for $30,000. On December 31, 20X5, Cooper's ending inventory included $6,000 of items purchased from Prem. Also in 20X5, Cooper purchased inventory for $50,000 and sold the units to Prem for $80,000. Prem included $20,000 of its purchase from Cooper in ending inventory on December 31, 20X5.

Summary income statement data for the two companies revealed the following:

	Prem Company	Cooper Company
Sales	$ 400,000	$ 200,000
Income from Cooper	20,500
	$ 420,500	$ 200,000
Cost of Goods Sold	$ 250,000	$ 120,000
Other Expenses	70,000	35,000
Total Expenses	$ (320,000)	$(155,000)
Net Income	$ 100,500	$ 45,000

1. Compute the amount to be reported as sales in the 20X5 consolidated income statement.

2. Compute the amount to be reported as cost of goods sold in the 20X5 consolidated income statement.

3. What amount of income will be assigned to the noncontrolling shareholders in the 20X5 consolidated income statement?

4. What amount of income will be assigned to the controlling interest in the 20X5 consolidated income statement?

Answer 1

Answer :-

a)	Reported Sales of prem company		$400,000
	Reported Sales of Cooper company		$200,000
			$600,000
	Inter company sale by prem company in 20X5	$30,000
	Inter company sale by cooper company in 20X5	$80,000	-$110,000
	Sales reported on consolidated income statement		$490,000
b)	Cost of Goods sold reported by Prem Company		$250,000
	Cost of Goods sold reported by Cooper Company		$120,000
			$370,000
	Adjustment due to intercompany sales
	Consolidated cost of goods sold
	Adjustment to cost of goods sold:
	CGS charged by prem on sale to cooper	$20,000
	CGS charged by Cooper (30000-6000 )	$24,000
	Total charged to GGS	$44,000
	CGS for consolidated entity
	$20,000 * (24,000 / 30,000)	-$16,000
	Required adjustment to CGS		$28,000
	CGS charged by cooper on sale to prem	$50,000
	CGS charged by Prem ($80,000 - $20,000)	$60,000
	Total charged to CGS	$110,000
	CGS for consolidated entity
	$ 50,000 * (60,000 / 80,000)	-$37,500
	Required adjustment to CGS		$72,500
	Total adjustment required		$100,500
c)	Reported net income of cooper company		$45,000
	unrealized profit on sale to prem company
	$30000 * ($20,000 / 80,000)		-$7500
	Realized net income		$37,500
	Non controlling interest's share		X   0.40
	Income assigned to non controlling interest		$15,000
d)	Reported net income of prem company	$100,500
	Less: income from subsidiary	-20,500	$80,000
	Net income of cooper company		$45,000
	Operating income		$125,000
	Less- Unrealised inventory profit of prem
	Company [ $10,000 * ($6,000 / $30000)]	$ 2000
	unrealized inventory profit of cooper
	Company [$30,000 * ($20,000 / $80,000) ]	$ 7500
	Income assigned to non controlling interest	$15,000	- $24,500
	Income assigned to controlling interst		100,500