Question

In: Accounting

TCO A) Adelman Company owns 45% of the outstanding voting common stock of Craig Corp. and...

TCO A) Adelman Company owns 45% of the outstanding voting common stock of Craig Corp. and has the ability to significantly influence the investee's operations. On January 3, 20X1, the balance in the Investment in Craig Corp. account was $462,000. Amortization associated with this acquisition is $10,000 per year. During 20X1, Craig earned a net income of $105,000 and paid cash dividends of $20,000. Previously in 20X0, Craig had sold inventory costing $28,000 to Adelman for $40,000. All but 20% of that inventory had been sold to outsiders by Adelman during 20X0. Additional sales were made to Adelman in 20X1 at a transfer price of $60,000 that had cost Craig $45,000. Only 10% of the 20X1 purchases had not been sold to outsiders by the end of 20X1.


Required:

(A) What amount of unrealized intra-entity inventory profit should be deferred by Adelman at December 31, 20X0?
(B) What amount of unrealized intra-entity profit should be deferred by Adelman at December 31, 20X1?
(C) What amount of equity income would Adelman have recognized in 20X1 from its ownership interest in Craig?
(D) What was the balance in the Investment in Craig Corp. account at December 31, 20X1?

Solutions

Expert Solution

Sol:

(A)Amount of unrealized intra-entity inventory profit to be   deferred by Adelman at December 31, 20X0
Eliminating Gross Profit in Opening Inventory:
(Sale Value-Cost)*Inv %. At hand*Share of profits%
(45,000-28,000)*20%*45%= 1,530
(B) Amount of unrealized intra-entity profit to be deferred by Adelman at December 31, 20X1
Eliminating Gross Profit in 20X1 sales
(Transfer Price -Cost)*Inv %. At hand*Share of profits%
(60,000-45000)*10%*45%= 675
C. Amount of equity income would Adelman have recognized in 20X1 from its ownership interest in Craig
(Craig 20X1 net Income*Share of profits)-Annual Amortization exp.-20X1 unrealised profit+20x0 unrealised profit
(105,000 *45%)-10000-675+1530= 38,105
(D) Balance in the Investment in Craig Corp. account at December 31, 20X1
20X1 Opening Bal.+ Adj. as per C above- share of 20X1 dividends paid by Craig
462,000+38,105-(20000*45%)= 410,105

Related Solutions

Simon Company owns 40% of the outstanding voting common stock of Nixon Corp. and has the...
Simon Company owns 40% of the outstanding voting common stock of Nixon Corp. and has the ability to significantly influence Nixon Corp.’s operations. During 2016 Simon had sold inventory costing $35,000 to Nixon for $50,000. All but 25% of that inventory had been sold to outsiders by Nixon Corp. by then end of fiscal year 2016. What amount of unrealized intra-entity inventory profit should be deferred by Simon Company in 2016? What is the journal entry that Simon company would...
X Corp. owns 98 of the 100 outstanding shares of T Corp. common stock the only...
X Corp. owns 98 of the 100 outstanding shares of T Corp. common stock the only class outstanding. The other 2 shares are owned by unrelated shareholders. T has some assets with both gains and losses; assume the amount of the gains exceeds the amount of the losses. In Year 1, X engages in the following transactions. On March 1, it sells 30 shares of T stock to unrelated A for cash; on April 1, it sells 10 shares of...
(TCO 4) Davis company has outstanding 120,000 shares of common stock and 5,000 shares of preferred...
(TCO 4) Davis company has outstanding 120,000 shares of common stock and 5,000 shares of preferred stock as of January 1, 2015. The preferred stock is convertible, and can be converted into 4 shares of common stock for each share of preferred. During the year, the following common stock transactions took place: Issued common stock on March 1, in the amount of 4,000 shares Issued a stock dividend (small) on all stock outstanding at April 1. The % of the...
Lewis Company owns 75% of the voting common stock of Bosch, Inc. On January 1, 2015,...
Lewis Company owns 75% of the voting common stock of Bosch, Inc. On January 1, 2015, Bosch sold $1,400,000 in ten-year bonds to the public at 105. The bonds pay a 10% interest rate every December 31. Lewis Company acquired 40% of these bonds on January 1, 2017, for 95% of the face value. Both companies utilizes the straight-line method of amortization. What consolidation entry would be recorded in connection with these intra-entity bonds on December 31, 2017?
1) Paula Corporation owns all of the voting common stock of Sally Company. Sally manufactures toys...
1) Paula Corporation owns all of the voting common stock of Sally Company. Sally manufactures toys and sells them to Paula. In turn, Paula sells them to customers. Neither of these companies do anything else. At the beginning of 2012 neither company had any inventory. During 2012 Sally manufactured 120,000 toys and sold 100,000 of them to Paula for $10 each and Paula sold 90,000 of these toys to customers for $16 each. These toys had cost Sally only $7...
Pearson Company owns 90% of the outstanding common stock of Spring Company. On January 1, 2014,...
Pearson Company owns 90% of the outstanding common stock of Spring Company. On January 1, 2014, Spring Company sold equipment to Pearson Company for $206,850. Spring Company had purchased the equipment for $316,700 on January 1, 2009, and had depreciated it using a 10% straight-line rate. The management of Pearson Company estimated that the equipment had a remaining useful life of five years on January 1, 2014. In 2015, Pearson Company reported $163,200 and Spring Company reported $107,300 in net...
7) P Company owns 80% of the outstanding common stock of S Company. On January 1....
7) P Company owns 80% of the outstanding common stock of S Company. On January 1. 2018, S Company sold land to P Company for OMR 500,000. S Company originally purchased the land for OMR 300,000. On January 1, 2019, P Company Sold the land purchased from S Company to a company outside the affiliated group for OMR 600,000. A. Prepare the journal entry of intercompany sales. B. Prepare in general journal form the workpaper entries necessary because of the...
McKinley Company owns 15,000 of the 50,000 outstanding shares of Ranier Corporation common stock and can...
McKinley Company owns 15,000 of the 50,000 outstanding shares of Ranier Corporation common stock and can exert significant influence over Ranier. During 2022, Ranier earns $350,000 and pays cash dividends of $140,000. What is the 2022 effect on McKinley’s Retained Earnings? Select one: a. $63,000 b. $147,000 c. $105,000 d. $56,000 e. $42,000
Starge Inc. owns 30% of the outstanding voting common stock of Ticker Co. and has the ability to significantly influence the investee's operations and decision making.
  Starge Inc. owns 30% of the outstanding voting common stock of Ticker Co. and has the ability to significantly influence the investee's operations and decision making. On January 1,2018, the balance in the Investment in Ticker Co. account was $ 403,159. Amortization associated with this acquisition is $8,111 per year. During 2018, Ticker earned an income of $ 108,899 and paid cash dividends of $ 36,897. Previously in 2017, Ticker had sold inventory costing $ 28,988 to Starge for...
On January 1, 2018, Access IT Company exchanged $1,080,000 for 45 percent of the outstanding voting...
On January 1, 2018, Access IT Company exchanged $1,080,000 for 45 percent of the outstanding voting stock of Net Connect. Especially attractive to Access IT was a research project underway at Net Connect that would enhance both the speed and quantity of client-accessible data. Although not recorded in Net Connect's financial records, the fair value of the research project was considered to be $2,040,000. In contractual agreements with the sole owner of the remaining 55 percent of Net Connect, Access...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT