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Question 9 P Company acquired 75 percent of S Company on January 1, 2018 at book...

Question 9

P Company acquired 75 percent of S Company on January 1, 2018 at book value. During 2018, S purchased inventory for $40,000 and sold it to P for $60,000. Of this amount, P reported $12,000 in ending inventory in 2018 and later sold it in 2019. In 2019, P sold inventory it had purchased for $35,000 to S for $50,000. S sold $45,000 of this inventory in 2019. In 2019, P reported stand-alone income of $870,000 and S reported total net income of $218,000.

1) Prepare the consolidation entries that related to intercompany sale of inventory for 2018.

2) Prepare the consolidation entries that related to intercompany sale of inventory for 2019.

3) Calculated consolidated net income AND income assigned to controlling shareholders in 2019.

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Expert Solution

UNREALISED PROFIT IN INVENTORIES

Where a group enterprise sells goods to another, the selling enterprise, as a separate legal enterprise, records profit made on those sales. If these goods are still held in the inventory by the buying enterprise at the year end, the profit recorded by the selling enterprise, when viewed from stand point of group as a whole, has not yet been earned, and will not be earned until the goods are eventually sold out side the group. On consolidation the unrealized profit on closing inventories will be eliminated from the group's profit, and the closing inventories of group will be recorded at cost of the group.

Answer for above question is given bellow

ekkarill92 answered 1 year ago
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