Question

Sweeny Corporation owns 60 percent of Bitner Company's shares. Partial 20X2 financial data for the companies and consolidated entity were as follows:

	Sweeny Corporation		Bitner Company
Sales	$	550,000	$	450,000
Cost of Goods Sold		310,000		300,000
Inventory, Dec. 31		180,000		210,000

On January 1, 20X2, Sweeny's inventory contained items purchased from Bitner for $75,000. The cost of the units to Bitner was $50,000. All intercorporate sales during 20X2 were made by Bitner to Sweeny.

Required:

a. What amount of intercorporate sales occurred in 20X2?

b.

How much unrealized intercompany profit existed on January 1, 20X2? On December 31, 20X2?

c.

Prepare the worksheet consolidation entries relating to inventory and cost of goods sold needed to prepare consolidated financial statements for 20X2. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

*Record the entry to eliminate the beginning inventory profit.

*Record the entry to eliminate the intercompany inventory sale.

d.

If Bitner reports net income of $90,000 for 20X2, what amount of income is assigned to the noncontrolling interest in the 20X2 consolidated income statement?

Answer 1

a) Amount of intercorporate sales :-

= Total Sales - Sweeny's Sales

= ($550000 + $450000) - ($550000 + ($450000*60%))

= $1000000 - ($550000 + $270000)

= $1000000 - $820000

= $180000

b) Unrealized Intercompany profit existed on January 1, and December 31.

January 1 = $75000 - $50000 = $25000

December 31 = $180000 + $210000 = $15000

c) Journal Entries :-

S.No.	Particulars	Debit($)	Credit($)
1)	Retained Earnings A/c Dr.	15000
	Non-Controlling Interest A/c Dr.	10000
	To Cost of Goods Sold A/c		25000
	(To Record profit on Beginning inventory)
2)	Sales A/c Dr.	180000
	To Cost of Goods Sold A/c		165000
	To Inventory A/c		15000
	(To Record Intercompany sale of inventory)

d)

Particulars	Amount($)
Reported net income of Bitner Company	90000
Prior-Period Profit Realized in 2012	25000
Unrealized Profit on 2012 Sales	(15000)
Realized income	100000
Proportion held by non-controlling interest	40%
Income assigned to non-controlling interest ($100000*40%)	40000