Plover Corporation acquired 80% of Sink Inc. equity on January 1, 2013, when the book values...

Plover Corporation acquired 80% of Sink Inc. equity on January 1, 2013, when the book values of Sink's assets and liabilities were equal to their fair values. The cost of the investment was equal to 80% of the book value of Sink's net assets. Plover separate income (excluding Sink) was $1,800,000, $1,700,000 and $1,900,000 in 2013, 2014 and 2015 respectively. Plover sold inventory to Sink during 2013 at a gross profit of $48,000 and one quarter remained at Sink at the end of the year. The remaining 25 percent was sold in 2014. At the end of 2014, Plover has $25,000 of inventory received from Sink from a sale of $100,000 which cost Sink $80,000. There are no unrealized profits in the inventory of Plover or Sink at the end of 2015. Plover uses the equity method in its separate books. Select financial information for Sink follows: 2013 2014 2015 Sales $790,000 $840,000 $940,000 Cost of Sales (420,000) (440,000) (500,000) Gross Profit 370,000 400,000 440,000 Operating Expenses (300,000) (320,000) (350,000) Net Income $ 70,000 $ 80,000 $ 90,000 Required: Prepare a schedule to determine the controlling interest share of the consolidated net income for 2013, 2014, and 2015.

Expert Solution

Answer :

Net income of Sink Inc

Particulars	2013	2014	2015
Sales	790000	840000	940000
Less cost of sale	420000	440000	500000
Gross profit	370000	400000	440000
Less Operating expense	300000	320000	350000
Net income	70000	80000	90000

Calculation of controlling interest

Income of Plover corporation

Particualrs	2013	2014	2015
Income	1800000	1700000	1900000
Add : 80% share in Sink Inc	56000	64000	72000
Less : Unrealised income	9600	5000	-
Net consolidated income	1846400	1759000	1972000

Calculation of unrealised profit

For 2013 - Sink Inc holds 25% stock of goods purchased from Ploever corporation

= 48000*1/4*80% = 9600

For 2014 - Polver corporation holds 25000 value of goods as stock purchased from Sink Inc, GP rate 20% on sales

= 25000*20% = 5000

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