Question

1Several years ago Polar Inc. acquired an 80% interest in Icecap Co. The book values of Icecap's asset and liability accounts at that time were considered to be equal to their fair values. Polar’s acquisition value corresponded to the underlying book value of Icecap so that no allocations or goodwill resulted from the transfer.

The following selected account balances were from the individual financial records of these two companies as of December 31, 2018:

	Polar	Icecap
	Inc.	Co.
Sales	$896,000	$504,000
cost of goods sold	406,000	276,000
Operating expenses	210,000	147,000
Retained earnings,1/1/18	1,036,000	252,000
Inventory	484,000	154,000
Builidings(net)	501,000	220,000
Investment income	not given

1. Assume that Polar sold inventory to Icecap at a markup equal to 25% of cost. Intra-entity transfers were $130,000 in 2017 and $165,000 in 2018. Of this inventory, $39,000 of the 2017 transfers were retained and then sold by Icecap in 2018, while $55,000 of the 2018 transfers was held until 2019.

Required:

For the consolidated financial statements for 2018, determine the balances that would appear for the following accounts: (i) Cost of Goods Sold; (ii) Inventory; and (iii) Net income attributable to the noncontrolling interest.

2.

Polar sold a building to Icecap on January 1, 2017 for $112,000, although the book value of this asset was only $70,000 on that date. The building had a five-year remaining useful life and was to be depreciated using the straight-line method with no salvage value.

Required:

For the consolidated financial statements for 2018, determine the balances that would appear for the following accounts: (i) Buildings (net); (ii) Operating expenses; and (iii) Net income attributable to the noncontrolling interest.

1Several years ago Polar Inc. acquired an 80% interest in Icecap Co. The book values of Icecap's asset and liability accounts at that time were considered to be equal to their fair values. Polar’s acquisition value corresponded to the underlying book value of Icecap so that no allocations or goodwill resulted from the transfer.

The following selected account balances were from the individual financial records of these two companies as of December 31, 2018:

	Polar	Icecap
	Inc.	Co.
Sales	$896,000	$504,000
cost of goods sold	406,000	276,000
Operating expenses	210,000	147,000
Retained earnings,1/1/18	1,036,000	252,000
Inventory	484,000	154,000
Builidings(net)	501,000	220,000
Investment income	not given

1. Assume that Polar sold inventory to Icecap at a markup equal to 25% of cost. Intra-entity transfers were $130,000 in 2017 and $165,000 in 2018. Of this inventory, $39,000 of the 2017 transfers were retained and then sold by Icecap in 2018, while $55,000 of the 2018 transfers was held until 2019.

Required:

For the consolidated financial statements for 2018, determine the balances that would appear for the following accounts: (i) Cost of Goods Sold; (ii) Inventory; and (iii) Net income attributable to the noncontrolling interest.

2.

Polar sold a building to Icecap on January 1, 2017 for $112,000, although the book value of this asset was only $70,000 on that date. The building had a five-year remaining useful life and was to be depreciated using the straight-line method with no salvage value.

Required:

For the consolidated financial statements for 2018, determine the balances that would appear for the following accounts: (i) Buildings (net); (ii) Operating expenses; and (iii) Net income attributable to the noncontrolling interest.

Answer 1

Consolidation eliminationentries to be passed as follows:

1

a) Dr Sales 165000

Cr Inter Company 165000
Being sales of Goods reversed by Icecap

Dr Inter Company 165000
Cr COGS 165000
Being Purchase by the Polar reversed

b) Since the Inter CompanyBuilding was sold on January 1, 2010. The inter company eliminationwas done on

December 31, 2010. Hence no entry as on December 31, 2012

c) Since that the Inter CompanyLand was sold on January 1, 2009. The inter company elimination wasdone on

December 31, 2009. Hence no entry as onDecember 31, 2012

2.

schedule showing thenoncontrolling interest in the consolidated 2012 netincome.

Net Income for the year 2012 ofIcecap

Sales 504,000
Cost of good sold 276,000
Operating Expenses 147,000

Net Income 81,000

Non Controlling share 20 percent16,200

3.

a) No entry requiredsince no inter company sale in 2013.

b) Since Inter CompanyBuilding was sold on January 1, 2010. The inter company elimination was done on

December 31, 2010. Hence no entry as onDecember 31, 2013

c) Since Inter CompanyLand was sold on January 1, 2009. The inter company elimination was done on

December 31, 2009. Hence no entry as onDecember 31, 2013