Question

In: Accounting

Summer Company sells all its output at 25 percent above cost. Parade Corporation purchases all its...

Summer Company sells all its output at 25 percent above cost. Parade Corporation purchases all its inventory from Summer. Selected information on the operations of the companies over the past three years is as follows:

Summer Company Parade Corporation
Year Sales to Parade Corp. Net Income Inventory, Dec. 31 Operating Income
20X2 $ 202,000 $ 102,000 $ 70,700 $ 157,000
20X3 177,000 92,000 106,200 253,000
20X4 273,000 162,000 145,600 304,000


Parade acquired 60 percent of the ownership of Summer on January 1, 20X1, at underlying book value.

Required:
Compute consolidated net income and income assigned to the controlling interest for 20X2, 20X3, and 20X4.



Solutions

Expert Solution

20X2 (IN $)

TOTAL RESOLD ENDING INVENTORY

(a)   (b=a-c) (c)

1.SALES 202,000 131300 70,700

2.COGS (1-3) 161,600 105,040 56,560

3.MARGIN (20%*1)   40,400 26260 14,140

20X3 (IN $)

TOTAL RESOLD ENDING INVENTORY

(a)   (b=a-c) (c)

1.SALES 177,000 70,800 106,200

2.COGS (1-3) 141,600 56,640 84,960

3.MARGIN (20%*1) 35,400 14,160 21,240

20X4 (IN $)

TOTAL RESOLD ENDING INVENTORY

(a)   (b=a-c) (c)

1.SALES 273,000 127,400 145,600

2.COGS (1-3) 218,400 101,920 116,480

3.MARGIN (20%*1) 54,600 25,480 29,120

YEAR SALES    UNREALIZED NET    INCOME

PROFITS INCOME NET OF UNREALIZED PROFITS

(a)    (b=a*20%) (c) (d=c-b)

20X2 202,000 40,400 102,000 61,600

20X3 177,000 35,400 92,000 56,600

20X4 273,000 54,600 162,000 107,400

YEAR      INVENTORY UNREALIZED OPERATING OPERATING INCOME

PROFITS INCOME NET OF UNREALIZED PROFITS

(a)    (b=a*20%) (c) (d=c-b)

20X2 70,700 14,140 157,000 142,860

20X3 106,200 21,240 253,000 231,760

20X4 145,600 29,120 304,000 274,880

YEAR OPERATING INCOME INCOME ASSIGNED TO CONSOLIDATED

  NET OF UNREALIZED PROFITS THE CONTROLLING INTEREST INCOME

(a) (b=60% of income net (c=a+b)

of unrealized profits)

20X2 142,860 36,960 179,820

20X3 231,760 33,960 265,720

20X4 274,880 64,440 339,320

------------HOPE THIS IS HELPFUL


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