Question

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.                                               

Answer 1

(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