Question

In 2000, the Gandoff Company purchased all of the outstanding stock of Bilbo Company at book value. Gandoff accounts for its investment in Bilbo under the initial value method and Bilbo pays no dividends

In 2016, Gandoff sold inventory to Bilbo Co for $600,000 on credit. This merchandise had cost Gandoff $300,000. At the end of 2016 Bilbo had not sold any of this merchandise nor had they paid Gandoff for the merchandise

In 2017 Bilbo paid off Gandoff and had sold 70% of the merchandise acquired from Gandoff.

In 2018 Bilbo sold the rest of the merchandise it had acquired from Gandoff

REQUIRED:

A) MAKE THE JOURNAL ENTRY GANDOFF MAKES WHEN IT SELLS THE MERCHANDISE TO BILBO (GANDOFF USES THE PERPETUAL METHOD FOR INVENTORY)

B) MAKE THE JOURNAL ENTRY BILBO MAKES WHEN IT BUYS THE MERCHANDISE FROM GANDOFF (BILBO ALSO USES PERPETUAL INVENTORY METHOD)

C) MAKE ANY NECESSARY WORKSHEET ENTRIES FOR 2016 CONNECTED WITH THIS MERCHANDISE

D)MAKE ANY NECESSARY WORKSHEET ENTRIES IN 2017 CONNECTED WITH THIS MERCHANDISE

E) MAKE ANY NECESSARY WORKSHEET ENTRIES IN 2018 CONNECTED WITH THIS MERCHANDISE

F) IN 2016, GANDOFF REPORTED UNCONSOLIDATED INCOME OF $4,000,000 AND BILBO REPORTED INCOME OF $300,000 WHAT WAS CONSOLIDATED INCOME IN 2016

G) IN 2017, GANDOFF REPORTED UNCONSOLIDATED INCOME OF $4,300,000 AND BILBO REPORTED INCOME OF $333,000 WHAT WAS CONSOLDIATED INCOME IN 2017

H) IN 2018 GANDOFF REPORTED UNCONSOLIDTED INCOME OF $5,000,000 AND BILBO REPORTED INCOME OF $500,000 WHAT WAS CONSOLIDATED INCOME IN 2018?

Answer 1

this case belong to cancellation of intercomapny transaction during consolidation.

The basic concept involve in this exercise that no company can gain profit from their sub comapny unless it realizes