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Pot Co. holds 90% of the common stock of Skillet Co.




Question. Pot Co. holds 90% of the common stock of Skillet Co. During 2011, Pot reportedsales of $1,120,000 and cost of goods sold of $840,000. For this same period,Skillet had sales of $420,000 and cost of goods sold of $252,000.Included in the amounts for Skillet's sales were Skillet's sales ofmerchandise to Pot for $140,000. There were no sales from Pot to Skillet.Intra-entity sales had the same markup as sales to outsiders. Pot still had40% of the intra-entity sales as inventory at the end of 2011. What areconsolidated sales and cost of goods sold for 2011?2. Pepe, Incorporated acquired 60% of Devin Company on January 1, 2010. On thatdate Devin sold equipment to Pepe for $45,000. The equipment had a cost of$120,000 and accumulated depreciation of $66,000 with a remaining life of 9years. Devin reported net income of $300,000 and $325,000 for 2010 and 2011,respectively. Pepe uses the equity method to account for its investment inDevin.3. Edgar Co. acquired 60% of Stendall Co. on January 1, 2011. During 2011, Edgarmade several sales of inventory to Stendall. The cost and selling price of thegoods were $140,000 and $200,000, respectively. Stendall still ownedone-fourth of the goods at the end of 2011. Consolidated cost of goods soldfor 2011 was $2,140,000 because of a consolidating adjustment for intra-entitysales less the entire profit remaining in Stendall's ending inventory.How would non-controlling interest in net income have differed if thetransfers had been for the same amount and cost, but from Stendall to Edgar?4. On January 1, 2010, Smeder Company, an 80% owned subsidiary of Collins, Inc.,transferred equipment with a 10-year life (six of which remain with no salvagevalue) to Collins in exchange for $84,000 cash. At the date of transfer,Smeder's records carried the equipment at a cost of $120,000 less accumulateddepreciation of $48,000. Straight-line depreciation is used. Smeder reportednet income of $28,000 and $32,000 for 2010 and 2011, respectively. All netincome effects of the intra-entity transfer are attributed to the seller forconsolidation purposes. What is the net effect on consolidated net income in2010 due to the equipment transfer?


Paper#49143 | Written in 18-Jul-2015

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