Question

The consolidated income statement for POP Industries and its 75% Subsidiary, SAS at the end of 2019 was as follows: Consolidated sales $900,000 , Consolidated cost of Sales $500,000 Operating expenses $200,000, Noncontrolling interest share $25,000 ,and Controlling interest share $175,000.

After preparing the consolidated income statement, the accountants discovered that POP had sold inventory that cost $75,000 to SAS for $95,000, and SAS had sold inventory that cost $40,000 to POP for $58,000. Half of the products from both transactions still remained in inventory at December 31, 2019. These intercompany sales transactions had not been properly eliminated in consolidation.

Required: Prepare the consolidated income statement for POP and Subsidiary for 2019 after correcting these errors. (Support your answer with detailed Formulas, calculations and explanation)

Answer 1

Answer :-

Step 1 :- The consolidated income statement :-

Consolidated sales	$900,000
LESS : Cost of sales	$500,000
Gross profit	$400,000
LESS; Operatong expenses	$200,000
Operating profit	$200,000
LESS : Controlling interest share	$175,000
Net income to controlling interest	25,000

Step 2 :- The, Half of  the inventory $58,000/2 = 29,000 is remained in stock.

So, the eliminated from inventory is 29,000* 58,000 - 40,000 / 58,000

= 29,000*1800 /58000

= $9,000

After errors, the corrected sales = $900,000 - $9,000

= $842,000

Step 3 :- The corrected consolidated income statement :-

Consolidated sales	$842,000
LESS : Cost of sales	$451,000
Gross profit	$391,000
LESS; Operatong expenses	$200,000
Operating profit	$191,000
LESS : Controlling interest share	$166,000
Net income to controlling interest	25,000

Working note :- Cost of sales = $500,000 - $9,000 =  $451,000

Controlling interest share = $175,000 - $9,000 = $166,000