Question

In: Accounting

A- Presented below are several figures reported for Plate Corporation and Saucer Industries as of December...

A- Presented below are several figures reported for Plate Corporation and Saucer Industries as of December 31, 2014. Plate has owned 70% of Saucer for the past five years, and at the time of purchase, the book value of Saucer's assets and liabilities equaled the fair value. The cost of the 70% investment was equal to 70% of the book value of Saucer's net assets. At the time of purchase, the fair values and book values of Saucer's assets and liabilities were equal.

                                                     Plate           Saucer

Inventory                              $120,000          $60,000

Sales                                        200,000          140,000

Cost of Goods Sold                130,000            80,000

Expenses                                   40,000            30,000

In 2013, Saucer sold inventory to Plate which had cost $40,000 for $60,000.   25% of this inventory remained on hand at December 31, 2013, but was sold in 2014. In 2014, Saucer sold inventory to Plate which had cost $30,000 for $45,000. 40% of this inventory remained unsold at December 31, 2014.                                                            

                                                                                                                                                

Required:

1- Calculate the following:

  1. parent’s share of subsidiary net income in 2014
  2. non-controlling interest share of subsidiary net income in 2014                                  

2- Prepare the required elimination entries in 2014. (Parent entries are not required)        (16.5 marks)

3- Prepare the working paper for consolidated Income Statement for 2014                          (5.5 marks)

4- Calculate the consolidated Inventory at December 31, 2014.                                               

Solutions

Expert Solution

(a) Computation of Parent's share in net income of Saucer-
Income Statement Saucer
Sales        1,40,000
Cost of Goods Sold         -80,000
Expenses         -30,000
Profit/ (loss) before taxes           30,000
%ge held by Parent                  70
Share of Parent           21,000
(ii) Computation of Non-Controlling Interest in Saucer-
Net earnings           30,000
NCI share (%)                  30
NCI share in earnings             9,000
(iii) Consolidated Net Income Statement-
Income Statement Saucer Plate Elimination of unrealised profit Consolidated
Sales        1,40,000        2,00,000                   -45,000         2,95,000
Cost of Goods Sold         -80,000      -1,30,000                     27,000       -1,83,000
Expenses         -30,000         -40,000           -70,000
Profit/ (loss) before taxes           30,000           30,000                   -18,000            42,000
Elimination entries-
Sales A/c---Dr           45,000
To Plate A/c           45,000
(Being Sales recorded in Saucer reversed)
Saucer A/c---Dr           27,000
To COGS A/c           27,000
(Being Inventory Purchase reversed to the extent of unsold)
(iv) Consolidated inventory is as follows-
Saucer Plate Elimination of unrealised profit Consolidated
Inventory           60,000        1,20,000                      -6,000         1,74,000

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