Chapter 07 - Intercompany Inventory TransactionsCHAPTER 7 INTERCOMPANY INVENTORY TRANSACTIONS ANSWERS TO QUESTIONS Q7-1 All inventory transfers between related companies must be eliminated to avoid an overstatement of revenue and cost of goods sold in the consolidated income statement. In addition, when unrealized profits exist at the end of the period, the eliminations are needed to avoid overstating inventory and consolidated net income. Q7-2 An inventory transfer at cost results in an overstatement of sales and cost of goods sold. While net income is not affected, gross profit ratios and other financial statement analysis may be substantially in error if appropriate eliminations are not made. Q7-3 An upstream sale occurs when the parent purchases items from one or more subsidiaries. A downstream sale occurs when the sale is made by the parent to one or more subsidiaries. Knowledge of the direction of sale is important when there are unrealized profits so that the person preparing the consolidation workpaper will know whether to reduce consolidated net income assigned to the controlling interest by the full amount of the unrealized profit (downstream) or reduce consolidated income assigned to the controlling and noncontrolling interests on a proportionate basis (upstream). Q7-4 As in all cases, the total amount of the unrealized profit must be eliminated in preparing the consolidated statements. When the profits are on the parent company's books, consolidated net income and income assigned to the controlling interest are reduced by the full amount of the unrealized profit. Q7-5 Consolidated net income is reduced by the full amount of the unrealized profits. In the upstream sale, the unrealized profits are apportioned between the parent company shareholders and the noncontrolling shareholders. Thus, consolidated net income assigned to the controlling and noncontrolling interests is reduced by a pro rata portion of the unrealized profits. Q7-6 Income assigned to the noncontrolling interest is affected when unrealized profits are recorded on the subsidiary's books as a result of an upstream sale. A downstream sale should have no effect on the income assigned to noncontrolling interest because the profits are on the books of the parent. Q7-7 The basic eliminating entry needed when the item is resold before the end of the period is: Sales Cost of Goods Sold XXXXXX XXXXXX The debit to sales is based on the intercorporate sale price. This means that only the revenue recorded by the company ultimately selling to the nonaffiliate is to be included in the consolidated income statement. Cost of goods sold is credited for the amount paid by the purchaser on the intercorporate transfer, thereby permitting the cost of goods sold recorded by the initial owner to be reported in the consolidated statement. 7-1 Chapter 07 - Intercompany Inventory Transactions Q7-8 The basic eliminating entry needed when one or more of the items are not resold before the end of the period is: Sales Cost of Goods Sold Inventory XXXXXX XXXXXX XXXXXX The debit to sales is for the full amount of the transfer price. Inventory is credited for the unrealized profit at the end of the period and cost of goods sold is credited for the amount charged to cost of goods sold by the company making the intercompany sale. Q7-9 Cost of goods sold is reported by the consolidated entity when inventory is sold to an external party. The amount reported as cost of goods sold is based on the amount paid for the inventory when it was produced or purchased from an external party. If inventory has been purchased by one company and sold to a related company, the cost of goods sold recorded on the intercorporate sale must be eliminated. Q7-10 No adjustment to retained earnings is needed if the intercorporate sales have been made at cost or if all intercorporate sales have been resold to an external party in the same accounting period. If not all of the intercorporate sales have been resold by the end of the period, consolidated retained earnings must be reduced by the parent's proportionate share of any unrealized profits. Q7-11 A proportionate share of the realized retained earnings of the subsidiary are assigned to the noncontrolling interest. Any unrealized profits on upstream sales are deducted proportionately from the amount assigned to the noncontrolling interest and consolidated retained earnings. Unrealized profits on downstream sales are deducted entirely from the retained earnings assigned to the consolidated entity. Q7-12 When inventory profits from a prior period intercompany transfer are realized in the current period, the profit is added to consolidated net income and to the income assigned to the shareholders of the company that made the intercompany sale. If the unrealized profits arise from a downstream sale, income assigned to the controlling interest will increase by the full amount of profit realized. When the profits arise from an upstream sale, income assigned to the controlling and noncontrolling interests will be increased proportionately in the period the profit is realized. Thus, knowledge of whether the profits resulted from an upstream or a downstream sale is imperative in assigning consolidated net income to the appropriate shareholder group. Q7-13 Consolidated retained earnings must be reduced by the full amount of any unrealized profit on the parent company books. Q7-14 Consolidated retained earnings must be reduced by the parent's proportionate share of the unrealized profit on the subsidiary's books. Q7-15* Sales between subsidiaries are treated in the same manner as upstream sales. Whenever the profits are on the books of one of the subsidiaries, the unrealized profits at the end of the period are eliminated and consolidated net income and income assigned to the controlling and noncontrolling interests is reduced. 7-2 Chapter 07 - Intercompany Inventory Transactions Q7-16* When a company is acquired in a business combination the transactions occurring before the combination generally are regarded as transactions with unrelated parties and no adjustments or eliminations are needed. All transactions between the companies following the combination must be fully eliminated. SOLUTIONS TO CASES C7-1 Measuring Cost of Goods Sold a. While the rule covers only a part of the elimination needed, Charlie is correct in that the cost of goods sold recorded by the selling company must be eliminated to avoid overstating that caption in the consolidated income statement. b. The rules will result in the proper consolidated totals if rule #1 is expanded to include a debit to sales and a credit to ending inventory for the amount of profit recorded by the company that sold to its affiliate. c. The way in which the rule is stated makes it appear to be incorrect, but it is correct. The rule is appropriate in that the cost of goods sold recorded by the purchasing affiliate is equal to the cost of goods sold to the first owner plus the profit the first owner recorded on the sale. Eliminating these amounts therefore eliminates the appropriate amount of cost of goods sold. If an equal amount of sales is eliminated, the rule should result in proper consolidated financial statement totals. d. The employee would be forced to look at the books of the selling affiliate and determine the difference between the intercorporate sale price and the price it paid to acquire or produce the items. If the items sold to affiliates are routinely produced and costs do not fluctuate greatly, it may be possible to use some form of gross profit ratio to estimate the amount of unrealized profit. C7-2 Inventory Values and Intercompany Transfers MEMO To: From: Re: President Water Products Corporation , CPA Inventory Sale and Purchase of New Inventory If Water Products holds only a small percent of the ownership of Plumbers Products and Growinkle Manufacturing, it should have no difficulty in reporting the desired results. This would not be the case if the two companies are subsidiaries of Water Products. If both Plumbers Products and Growinkel are subsidiaries of Water Products, both the sale of inventory to Plumbers Supply and the purchase of inventory from Growinkle Manufacturing must be eliminated. In addition, the unrealized profit on any unsold inventory involved in these transfers must be eliminated in preparing the financial statements for the current period. 7-3 Chapter 07 - Intercompany Inventory Transactions C7-2 (continued) The consolidated income statement should include the same amount of income on the inventory sold to Plumbers Supply and resold during the year as would have been recorded if Water Products had sold the inventory directly to the purchaser. Any income recorded by Water Products on inventory not resold by Plumbers Supply must be eliminated. Similarly, the consolidated income statement should include the same amount of income on the inventory purchased by Water Products and resold during the year as would have been recorded if Growinkle Manufacturing had sold the inventory directly to the purchaser. Any income recorded by Growinkle Manufacturing on inventory not resold by Water Products must be eliminated. Consolidated net income may increase if Plumbers Supply is able to sell the inventory it purchased from Water Products at a higher price than would have been received by Water Products or if it is able to sell a larger number of units. The same can be said for the inventory purchased by Water Products from Growinkle Manufacturing. It is important to recognize that the transfer of inventory between Water Products and its subsidiaries does not in itself generate income for the consolidated entity. An additional level of complexity may arise in this situation if Water Products uses the LIFO inventory method. It might, for example, be forced to carry over its LIFO cost basis on the old inventory sold to Plumbers Supply to the new inventory purchased from Growinkle Manufacturing since it was replaced within the accounting period. Primary citation: ARB 51, Par. 6 7-4 000 more than the original amount paid by Frankle.000 on December 20. 20X2. the effects of the intercompany transfer should be eliminated.000 at December 31.000 or $240. Par. 6] The following eliminating entry is required at December 31. under the lower-of-cost-or-market rule.000 and $6. 20X2. respectively.000 ($60.Intercompany Inventory Transactions C7-3 Intercorporate Inventory Transfers MEMO To: Treasurer Evert Corporation From: Re: . 20X2 and 20X3.000 will increase consolidated net income by $60. Since the exchange price was well below Frankle’s cost. It therefore seems appropriate for the consolidated entity to report the inventory at Frankle’s cost of $240. These changes will result in an increase in consolidated retained earnings and the amount assigned to the noncontrolling shareholders in the consolidated balance sheet by $54. While the value of the inventory apparently had fallen below Frankle’s carrying value.000 60. the accounting standards indicate no loss should be recognized when the evidence indicates that cost will be recovered with an approximately normal profit margin upon sale in the ordinary course of business. consideration should be given to whether the inventory should be reported at $180.000 and income assigned to the noncontrolling interest by $6. Chapter 4. In preparing the consolidated statements at December 31.000.000 to Evert for $180. 20X2.000 x . [ARB 51.10).000 240.Chapter 07 . The specific eliminating entries required in this case depend on the valuation assigned to the inventory at December 31. [ARB 43. 20X2. 20X2: E(1) Sales Inventory Cost of Goods Sold 180.000. Frankle Company sold inventory with a carrying value of $240. Par. CPA Inventory Sale to Parent This memo is prepared in response to your request for information on the appropriate treatment of intercompany inventory transfers in consolidated financial statements. Eliminating sales of $180. 9] We are told the management of Frankle considered the drop in prices to be temporary and Evert was able to sell the inventory for $70.000 The above entry will increase the carrying value of the inventory to $240. 7-5 .000 and cost of goods sold of $240.000 in the consolidated statements at December 31. 10). The subsidiary apparently had less unrealized inventory profit at the end of the period than it did at the start of the period. 20X2. Par. b. In addition. 20X3: E(2) Cost of Goods Sold Retained Earnings Noncontrolling interest 60. the parent must have had more unrealized profit on its books at the end of the period than it did at the beginning.000 6. CH 4.000 The above entry will reduce consolidated net income by $60.Chapter 07 . When the amount of unrealized inventory profits on the books of the subsidiary at the beginning of the period is greater than the amount at the end of the period. The most likely reason is that a substantial amount of the parent company sales was made to its subsidiaries and the cost of goods sold on those items was eliminated in preparing the consolidated statements.000 x . c. d. 7-6 . 6 C7-4 Unrealized Inventory Profits a. 20X3.000 54. Primary citations: ARB 43. No eliminations are required for balances reported at December 31.Intercompany Inventory Transactions C7-3 (continued) The following eliminating entry is required at December 31. the income assigned to the noncontrolling interest for the period will exceed a pro rata portion of the reported net income of the subsidiary. 9 ARB 51. A loss was recorded by the seller on an intercompany sale of inventory to an affiliate and the purchaser continues to hold the inventory. Par. The negative effect of the latter apparently offset the positive effect of the reduction in unrealized profits by the subsidiary.000 and income assigned to the noncontrolling interest by $6.000 ($60. because the inventory has been sold to a nonaffiliate prior to year-end. The credits to retained earnings and noncontrolling interest are needed to bring the beginning balances into agreement with those reported at December 31. The net impact on income will depend upon whether there were more unrealized profits at the beginning or end of the year.Intercompany Inventory Transactions C7-5 Eliminating Inventory Transfers a. the amount of income tax expense also will be overstated in the period in which unrealized profits are reported and understated in the period in which the profits are realized. When intercompany inventory purchases are bunched at the end of the year. Eliminating entries must be made each of the years until resale to avoid a misstatement of assets and equities. retained earnings. inventories may be misstated for a period of years before the inventory is resold. If the companies pay income taxes on their individual earnings. Typically. Inventory. the amount of unrealized profit included in ending inventory may be quite different under FIFO versus LIFO. If intercompany purchases are placed in a LIFO inventory base. Because profit margins vary considerably. The purchaser might then use a different type of inventory tag or mark these units in some way when the product is received and placed in inventory. a parent will align inventory costing methods subsequent to a subsidiary acquisition to avoid problems caused by differences in accounting for the same items or types of items. If Ready Building does not hold total ownership of the subsidiaries. The most important inventory system is the one used by the company making the intercompany purchase. If no intercompany sales are eliminated. it may be possible to use unique shipping containers for intercompany sales or to specifically mark the containers in some way to identify the intercompany shipments at the time of receipt. Alternatively. Inventory count teams could then easily identify the product when inventories are taken. 7-7 . the income statement may include overstated sales revenue and cost of goods sold. In those cases where the intercompany purchases are in high volume and the inventory turns over very quickly. the amount of income assigned to noncontrolling shareholders is likely to be incorrect as well. b.Chapter 07 . Ready Building needs to establish a formal system to monitor intercompany sales. a small amount of inventory left at the end of the period may be immaterial and of little concern. and stockholders' equity are likely to be overstated if inventories are sold to affiliates at a profit. c. Perhaps the best alternative would be to establish a separate series of accounts to be used solely for intercompany transfers. the amount of unrealized profit may vary considerably if uneven amounts of product are purchased by affiliates from period to period. current assets and total assets. A number of factors might be considered. c.com) between segments are apparently relatively insignificant because they are not reported in the notes to the consolidated financial statements relating to segment reporting. In the fiscal year ending December 31. The effects of intercompany transfers are eliminated in consolidation.Intercompany Inventory Transactions C7-5 (continued) d. It may be necessary to start by looking at intercorporate cash receipts and disbursements to determine the extent of intercorporate sales. but is relatively small in relation to sales to unaffiliated customers. Exxon Mobil reported eliminations of $368 billion of intersegment transfers. and components manufactured by the company and its subsidiaries. it may be possible to estimate for the year as a whole based on an examination of several months. One approach would be to take a physical inventory of the specific product types which have been identified and attempt to trace back using the product identification numbers or shipping numbers to determine what portion of the inventory on hand was purchased from affiliates. The amount has been decreasing in recent years. with a smaller amount of financial and other services included. 7-8 . For those products sold throughout the year.ford. This amount represents nearly 50 percent of total reported segment sales. The amount of intercompany transfers is large. totaling almost $4 billion. For consolidation purposes.com) prices intercompany transfers at estimated market prices.Chapter 07 . parts. One or more months might be selected and all vouchers examined to establish the level of intercorporate sales and the profit margins recorded on the sales. the amount of unrealized profit at year end should be estimated. which does not include intercompany transfers within segments.com) intercompany transfers consist primarily of vehicles. Exxon Mobil (www. 2006. C7-6 Intercompany Profits and Transfers of Inventory a. b. Once total intercompany sales and profit margins have been estimated. The amount of intercompany transfers is significant. The intercompany transfers of Xerox (www. Exxon Mobil eliminates the effects of intercompany transactions. For consolidation purposes. Ford Motor Company (www. all significant intercompany accounts and transactions are eliminated.exxonmobil.xerox. 000) $308.Chapter 07 . c 5.Intercompany Inventory Transactions SOLUTIONS TO EXERCISES E7-1 Multiple-Choice Questions on Intercompany Inventory Transfers [AICPA Adapted] 1. c 3.25 $320.000 x ($60.000 x . c 6.000 (15.000 $235.000) $470. a 2.000 / $200.000) Inventory reported by Lamm Total inventory reported Unrealized profit at year end [$50. a 4.000 $485.000 250.000 .000 + $60.000)] Amount reported in consolidated statements 7-9 $48.000 (12. c Net assets reported Profit on intercompany sale Proportion of inventory unsold at year end ($60.000) Unrealized profit at year end Amount reported in consolidated statements Inventory reported by Banks ($175.000 / $240. 000) $ 9.000 / [(Stockholders’ Equity $50.000) – $39.000 E7-3 Multiple Choice – Consolidated Income Statement c 1. 2.000 700. b Cost of goods sold reported by Park Cost of goods sold reported by Small Total cost of goods sold reported Cost of goods sold reported by Park on sale to Small ($500. b 14 years = ($28.000)] 6.000 .000 = Inventory held by Spin ($32.$20. requiring candidates to select the closest answer.40($86.000) (240.000 3.000 x .100.500. d $32.000] Carrying cost of inventory for Power 5.000 / [(28.20 = $14.000 + $140. c $9. b 3.000 = ($26.000 x 4 / 5) x .40) Reduction of cost of goods sold reported by Small for profit on intercompany sale [($500. b . 2.000 4.375) Unrealized profit on sale [($30.000) Income assigned to noncontrolling interest [.000 Note: Answer b in the actual CPA examination question was $1.$60.Intercompany Inventory Transactions E7-2 Multiple-Choice Questions on the Effects of Inventory Transfers [AICPA Adapted] 1.000 .60] Cost of goods sold for consolidated entity $ 800.000)] Consolidated net income assigned to controlling interest 7-10 $39.$47.000 .000 x .000 + $25.400) $28.Chapter 07 .000) $1.000 (10.000 = ($200.000 (200.000) + (Patent $20.000 (3.000) – $52.000.000) / 4 years] $12.600 .000 + $19. c Total income ($86. b $6.000) – $308.060.000 $1. 200 Inventory reported by Lorn Unrealized profit ($45.000) / $48.000 (45.000) $ 75.000 (9.$32.30 (10.000 x .20) Ending inventory reported $ 24.000 (60.000 = [($67. d Sales reported by Movie Productions Inc.000 x .000) $ 80.000) x . e Consolidated sales Cost of goods sold Consolidated net income Income to Dresser’s noncontrolling interest: Sales Reported cost of sales Report income Portion realized Realized net income Portion to Noncontrolling Interest Income to noncontrolling Interest Income to controlling interest $140.800) $ 69.20] 7-11 $67.000] 2. a Amount paid by Lorn Corporation Unrealized profit Actual cost Portion sold Cost of goods sold $120.000 x . a $20.Chapter 07 .000 (20. c 2. Cost of goods sold ($30.000 x 2/3) Consolidated net income 3. a $120.80 $ 60.000 = $30. a $7.000) $ 45.Intercompany Inventory Transactions E7-4 Multiple-Choice Questions — Consolidated Balances 1.000) $ 15.000 3.000 .000 (75.000 x [($48.000 E7-5 Multiple-Choice Questions — Consolidated Income Statement 1.000 .000) $47.000 4.$16.80 $ 36.000 .000 x . 000 750.000 600.000 Journal entries recorded by Olman Company: (1) Inventory Cash (Accounts Payable) 750.125. c.000 1.000 750.125.000 7-12 750.000 (3) Cost of Goods Sold Inventory 750.000 (3) Cost of Goods Sold Inventory 600. Journal entries recorded by Nordway Corporation: (1) Inventory Cash (Accounts Payable) 960. b.000 .Intercompany Inventory Transactions E7-6 Realized Profit on Intercompany Sale a.000 (2) Cash (Accounts Receivable) Sales 1.000 (2) Cash (Accounts Receivable) Sales 750.000 Eliminating entry: E(1) Sales Cost of Goods Sold 750.000 750.000 960.Chapter 07 . 000 Eliminating entry: E(1) Sales Cost of Goods Sold Inventory 750.Chapter 07 .000 Journal entries recorded by Olman Company: (1) Inventory Cash (Accounts Payable) 750.000 (3) Cost of Goods Sold Inventory 540.000 7-13 708.000 960.Intercompany Inventory Transactions E7-7 Sale of Inventory to Subsidiary a.000 600.000 750.000 810.000 750. c. b.000 540.000 (2) Cash (Accounts Receivable) Sales 750.000 (3) Cost of Goods Sold Inventory 600. Journal entries recorded by Nordway Corporation: (1) Inventory Cash (Accounts Payable) 960.000 .000 42.000 (2) Cash (Accounts Receivable) Sales 810. 000 ($82 x 7. Sales Cost of Goods Sold Inventory Retained Earnings.400 7-14 36. Eliminating entry: E(1) d. b.000 desks).Intercompany Inventory Transactions E7-8 Inventory Transfer between Parent and Subsidiary a.000 904. January 1 Cost of Goods Sold 36. c. Karlow Corporation reported cost of goods sold of $820.000 Eliminating entry: E(1) Retained Earnings.000 36.000 desks).000 desks) and Draw Company reported cost of goods sold of $658.000 ($82 x 10.600 14.000 . Cost of goods sold for the consolidated entity is $574.000 Eliminating entry: E(1) e.Chapter 07 . 940.000 ($94 x 7.000 36. January 1 Noncontrolling Interest Cost of Goods Sold 21. 000) $490.00 .000) $ 90. b.000 Required Adjustment to Cost of Goods Sold: Cost of goods sold — Farmco ($900.00 / 1.000 unrealized profit) x .60 $400.000 / 1. Operating income of Holiday Bakery Net income of Farmco Products $400.000 $550.000 60.000 $1.40 Income assigned to controlling interest (36.000) $454.00 (3.000 54.000 Less: Unrealized inventory profits Consolidated net income Less: Income assigned to noncontrolling interest ($150.000 (60.00 x 80. Sale price to Holiday Bakery per bag ($900.00 x 20.5)] Cost per bag Bags sold by Holiday Bakery (100.000) Consolidated cost of goods sold E(1) Sales Inventory ($3.000 .000 units) $ 600.000 bags) Cost of Goods Sold $ 9.($9.000 $480.000 .000 150.20.000 Alternate computation: Operating income of Holiday Bakery Net income of Farmco Products Unrealized profits ($3.000 x .00 x 80.$60.000 .Intercompany Inventory Transactions E7-9 Income Statement Effects of Unrealized Profit a.000 Consolidated cost of goods sold ($6.000) Profit per bag [$9.000 (60.00 x 20.000 units) Realized net income Ownership held by Holiday Bakery Income assigned to controlling interest 7-15 $150.000 $454.000 (480.Chapter 07 .00 x 80.000 840.00) $ 6.000 units) Required adjustment c.000 720.000 / 100.000 900.320.000) $ 840.5) Cost of goods sold — Holiday ($9. January 1 Noncontrolling Interest Cost of Goods Sold $60.000 36.000 $486.00 x 20. Retained Earnings.000) x . January 1.000) $486.000 60.000 $610.000 250.Intercompany Inventory Transactions E7-10 Prior-Period Unrealized Inventory Profit a.60 Income assigned to controlling interest 7-16 $300.000 60.000 $120.00 $ 6.00 / 1.000 + $60.Chapter 07 .000 $310.5) Bags sold Cost of goods sold from inventory held.000 $300.000 .000 186. 20X9 b.000 x . Assuming the basic equity method is used by Holiday Bakery in accounting for its investment in Farmco Products.40 Income assigned to controlling interest (124. the following eliminating entry is needed: E(1) c. Cost per bag of flour ($9.000 $550.000 bags x $3.000 Alternate computation: Operating income of Holiday Bakery Net income of Farmco Products Inventory profits realized in 20X9 Realized net income Ownership held by Holiday Bakery $250.000 = 20.000 24.000 Operating income of Holiday Bakery Net income of Farmco Products 60.000 Add: Inventory profits realized in 20X9 Consolidated net income Less: Income assigned to noncontrolling shareholders ($250. 500 Adjustment due to intercompany sales Consolidated cost of goods sold Adjustment to cost of goods sold: c. d.000 x ($6.000) Required adjustment to CGS $ 20.000 / $80.$6. $ 30.000 (7.000 CGS charged by Cooper on sale to Prem CGS charged by Prem ($80.000)] Unrealized inventory profits of Copper Company [$30.500) $ 98.40 $ 15.000 $250.Intercompany Inventory Transactions E7-11 Computation of Consolidated Income Statement Data a.000 $ 2.000 / $80.000) Total charged to CGS CGS for consolidated entity $50.500 $ 45.000 x ($24.000 .000 .000 $110.000) $ 80.000 60.000 120.500 $100.500 15.000 / $30.000 200.000 x ($20.000 Cost of goods sold reported by Prem Company Cost of goods sold reported by Cooper Company $400.000 80.000) $490.000 (100.000 $370.$20.000 (24.000 (27.000 $107.500) $269.500 .000 $600.Chapter 07 .000) Required adjustment to CGS Total adjustment required $ 50.000 x ($20.000 x ($60.000 / $80.500) Reported net income of Cooper Company Unrealized profit on sale to Prem Company $30.000 45.000 (110.500) $ 37.000 $ 44.500 x .000 7.000 / $30.000) Realized net income Noncontrolling interest's share Income assigned to noncontrolling interest Reported net income of Pem Company Less: Income from subsidiary Net income of Cooper Company Operating income Less: Unrealized inventory profits of Prem Company [$10.000 24. Reported sales of Prem Company Reported sales of Cooper Company Intercompany sales by Prem Company in 20X5 Intercompany sales by Cooper Company in 20X5 Sales reported on consolidated income statement b.000 (16.000) (37.000 72. CGS charged by Prem on sale to Cooper CGS charged by Cooper ($30.000) Total charged to CGS CGS for consolidated entity $20.000 $125.000)] Income assigned to noncontrolling interest Income assigned to controlling interest 7-17 $ 28. 000 400.000 $230. 400.000 x .000) $320. 300.000 . Consolidated cost of goods sold for 20X8 should be reported as $240. 300.000 x . c.000 Cash Sales Sale of inventory to Gord Corporation.000 400.000 b. Entries recorded by Trent Company Inventory Cash Purchase inventory.40 Consolidated net income Income to assigned to noncontrolling interest ($120.60 180.000 300.000 ($400.000 = $300.000 x . 360.$300.000) x . Operating income reported by Gord Net income reported by Trent Unrealized loss on intercorporate sale ($400.000 (30.Chapter 07 . 400.000 300.000 .Intercompany Inventory Transactions E7-12 Sale of Inventory at a Loss a.000 40.000 $350.000 Cost of Goods Sold Inventory Record cost of goods sold.000 360.000 Cost of Goods Sold Inventory Record cost of goods sold: $180.60).25) Income assigned to controlling interest 7-18 $ 80.000 Cash Sales Sale of inventory to nonaffiliates.000 120.000 Entries recorded by Gord Corporation Inventory Cash Purchase of inventory from Trent.000 180. Eliminating entry.000 Computation of cost of goods sold to be eliminated Cost of goods sold recorded by Trent Cost of goods sold recorded by Gord Total recorded Consolidated cost of goods sold Required elimination 7-19 $400.000 40.000 180.000 (240.000) $340.000 $580.000 340. 20X8: E(1) Sales Inventory Cost of Goods Sold 300.000 . December 31.Intercompany Inventory Transactions E7-12 (continued) d.Chapter 07 . 000) $235.000 / $135.000 85.000 Income assigned to controlling interest: Operating income of Hollow Corporation Net income of Surg Corporation Add: Inventory profit of prior year realized in 20X5 Less: Unrealized inventory profit — Surg Corporation Unrealized inventory profit — Hollow Corporation Income to noncontrolling interest ($85.000 .000) Total cost of goods sold d. c.000 90.000/$280.000 85.000) (55.000 Less: Unrealized profit — Surg Corporation Consolidated net income b. Inventory balance. (55. December 31.000) x ($90.$90.$30.000 $ 30. 20X5: Inventory reported by Hollow Corporation Unrealized profit on books of Surg Corporation ($135.$110.000) $228.000 (10. 20X5 $110.000 x ($120.000 / $180.Intercompany Inventory Transactions E7-13 Intercompany Sales a.$10.000 $75.000/$135.000 / $280.000 (15.$140.000) $ 30.30 Income assigned to controlling interest 7-20 $220.000) x ($110.000 Consolidated cost of goods sold for 20X5: CGS on sale of inventory on hand January 1. Consolidated net income for 20X4: Operating income of Hollow Corporation Net income of Surg Corporation $160. December 31.000) (27.000 15.000) x ($140.Chapter 07 .000 .000) $20.000) x .000 70.000) CGS on items purchased from Hollow in 20X5 ($280.000 .000 Inventory reported by Surg Corporation Unrealized profit on books of Hollow Corporation ($280.000) Inventory. 20X5 $45.000 $305.000 .000 $250.000 .000 .000) x ($30.000) 55.000 + $15.000 $185.000) CGS on items purchased from Surg in 20X5 ($135.000 (10. Chapter 07 . 98.000 12.000 (1)250.000 b.000 (1)280.000 150.000 280.000 590. 280.000 (3) 10.Intercompany Inventory Transactions E7-14 Consolidated Balance Sheet Workpaper a. 150.000 928.000 420.000 150.000 250. Eliminating entries: E(1) E(2) E(3) Common Stock — Hingle Company Retained Earnings Investment in Hingle Company Stock Noncontrolling Interest Eliminate investment balance.000 10.000 Retained Earnings Noncontrolling Interest Inventory Eliminate unrealized inventory profit of Hingle Company.000 100.000 20.000 70.000 .000 Consolidated 138.000 Doorst Corporation and Hingle Company Consolidated Balance Sheet Workpaper December 31.000 250.000 (2) 12.000 90.000 120.000 (2) 28. 20X8 Item Cash and Receivables Inventory Buildings and Equipment (net) Investment in Hingle Company Stock Debits Accounts Payable Common Stock Retained Earnings Noncontrolling Interest Credits Doorst Corp.000 568. 28.000 280.000 420.000 928.000 40.000 838. 10.000 200.000 530.000 838.000 (1)150.000 (1)120.000 310.000 450.000 7-21 Eliminations Debit Credit (2) 40.000 (3) 10.000 200.000 40. Hingle Co.000 Retained Earnings Inventory Eliminate unrealized inventory profit of Doorst Corporation.000 108.000 200.000 450. 000 [$90. 7-22 150.000 Cash Sales Sale of inventory to Torkel Company. Inventory at December 31.000 Entries recorded by Brant Company Inventory Cash Purchase of inventory from Klon.000 / $150. should be reported at $40.000 . Entries recorded by Klon Corporation Cash Sales Sale of inventory to Brant Company.Chapter 07 . 20X8.Intercompany Inventory Transactions E7-15* Multiple Transfers between Affiliates a.000)].000 100.000 Cost of Goods Sold Inventory Record cost of goods sold. 150.000 Cash Sales Sale of inventory to nonaffiliates. 100. c.000 b.000 x ($100.000)].000 Entries recorded by Torkel Company Inventory Cash Purchase of inventory from Brant. 150.000 Cost of Goods Sold Inventory Record cost of goods sold.000 150.000 150.000 150.000 120. Cost of goods sold for 20X8 should be reported as $60.000 150. 150.000 Cost of Goods Sold Inventory Record cost of goods sold. 90. 150. 150.000 x ($100.000 [$60.000 90.000 / $150. 120. Eliminating entry for inventory: E(1) Sales Cost of Goods Sold Inventory 300.Intercompany Inventory Transactions E7-15* (continued) d.000 .000 90.000 20.000) $280.000 Computation of cost of goods sold to be eliminated Cost of goods sold recorded by Klon Cost of goods sold recorded by Brant Cost of goods sold recorded by Torkel Total recorded Consolidated cost of goods sold Required elimination $100.000 $340.000 150.000 (60.000 (40.000 Computation of reduction to carrying value of inventory Inventory reported by Torkel Inventory balance to be reported Required elimination 7-23 $60.000) $20.000 280.Chapter 07 . 000 60.000 55.000 40.000 (2) Cash (Accounts Receivable) Sales Record sale to Herb Corporation.000 (3) Cost of Goods Sold Inventory Record cost of goods sold to Herb Corporation.000 60. 150. 60. (1) Inventory Cash (Accounts Payable) Record purchases from Spice Company.000 150.000 45.000 Eliminating entry: E(1) Sales Cost of Goods Sold Inventory Eliminate intercompany sale of inventory.000 5.000 Journal entries recorded by Herb Corporation: b.000 (3) Cost of Goods Sold Inventory Record cost of goods sold. 45. 90. 7-24 60.Intercompany Inventory Transactions E7-16 Inventory Sales a.000 .000 90.000 (2) Cash (Accounts Receivable) Sales Record sale of items to nonaffiliates.Chapter 07 . 60. 40. Journal entries recorded by Spice Company: (1) Inventory Cash (Accounts Payable) Record purchases from nonaffiliate. 000 (50.000) x ($30. 20X9 Realized net income Noncontrolling interest's share of ownership Income assigned to noncontrolling interest 7-25 7.000 190.000 50.000 . January 1 Noncontrolling Interest Cost of goods sold Eliminate beginning inventory profit: $10.000 10.000 20X9 $420.500 240.500 2.000 x .000) Sales Cost of Goods Sold Inventory Eliminate intercompany sale of inventory.25 $ 85.000 10. December 31. Eliminating entries: E(1) E(2) b.$120. Retained Earnings.000) $380.000 (10. Reported net income of Level Brothers Unrealized profit.000 20X8 $350.000) $340.Intercompany Inventory Transactions E7-17 Prior-Period Inventory Profits a. December 31.000 = ($180.25 $ 95.Chapter 07 .000 .000 x . 20X8 Unrealized profit.000 / $180. 800) $394.000 165.000 $330. 20X4 $120.000 = $180.000 $250. 20X2: $25. 20X3 $105.000) 14. 20X2 $70.25) Inventory profit.000) x .000 x .000 December 31.200 .000 90.000 b.000 + $21.000 + $450.$24.$14.000) 21.400) $201.000 / 1.000 .000 $236.000 + $210. Retained Earnings.$820.($120.$21.800 (62.($70.000 (15.000 (33.000 .($105.000 10.000 $ 90.40 $ 40.000 $460. 15. January 1 Noncontrolling Interest Cost of Goods Sold Eliminate beginning inventory profit.000 15.40 Income to controlling interest 20X2 20X3 20X4 $150.000 .000) $457.000 (24.000 . December 31.000 $323.000) x .$50.000 .000 (34.600 7-26 (21.Intercompany Inventory Transactions SOLUTIONS TO PROBLEMS P7-18 Consolidated Income Statement Data a.000) $100.000 = $75. E(1) E(2) d.000 + $14.000 / 1.Chapter 07 .000 Sales Cost of Goods Sold Inventory Eliminate intercompany sale of inventory.000 25.000 160. 180.000 $240. December 31.000 $300.000 Reported net income of Bitner Company Prior-period profit realized in 20X2 Unrealized profit on 20X2 sales Realized income Proportion held by noncontrolling interest Income assigned to noncontrolling interest 25.000 P7-19 Unrealized Profit on Upstream Sales Operating income reported by Pacific Net income reported by Carroll Inventory profit.40 ($160.000 100. 20X2: $15.000 .40 ($90.000 (14.000 .25) Consolidated net income Income to noncontrolling interest: ($100.000 / 1. $180. January 1.000 = $550.200) $289.25) Inventory profit.000 .$375.000) x .000 . December 31.000 c. 000) x . E(2) Sales Inventory Cost of Goods Sold Eliminate intercompany sale of inventory.000) $176.$55.000) (55.000 140. Proportion of intercompany inventory purchases resold during 20X5: Unrealized profit at year end Intercompany transfer price Cost of inventory sold ($140.000 . December 31.000 25.Intercompany Inventory Transactions P7-20 Net Income of Consolidated Entity Operating income of Master for 20X5 Net income of Crown for 20X5 $118.00 . 20X5: E(1) Accounts Payable Accounts Receivable Eliminate intercompany receivable/payable.900 P7-21 Correction of Eliminating Entries a.000 .000 (100.000 $183. 7-27 80.000) ÷ 40.000 + $40. $ 12.000 .000 / 15 years) Consolidated net income.30 Proportion of intercompany purchases resold by Bolger during 20X5 (1.000 40.30) b.000 (14.30 Income to controlling interest (3.100) $161.000 .Chapter 07 .000 128.000 80.000 (14.$3.000) Add: Prior year profits realized by Master Prior year profits realized by Crown Less: Unrealized profits for 20X5 by Master Unrealized profits for 20X5 by Crown Amortization of differential ($45.000 12.. 20X5 Less: Income to noncontrolling interest ($65.70 Eliminating entries.000 .000 / 1.000 65.40) Total Profit Proportion of intercompany sale held by Bolger at year end $140. 000 112.000 $172.000 Accumulated depreciation for consolidated entity: Accumulated depreciation reported by Lever Accumulated depreciation reported by Tropic Cumulative write-off of differential ($5.000 110. 20X6 Tropic's retained earnings reported December 31.000 $130.000 $320.000 x 6 years) Accumulated depreciation for consolidated entity c. 20X6: Tropic's common stock outstanding December 31.75 Investment in Tropic Company stock e.000 Amount paid by Lever to acquire ownership in Tropic: Common stock outstanding Retained earnings at acquisition Total book value at acquisition Increase in value of buildings and equipment Fair value of net assets acquired Proportion of ownership acquired Amount paid by Lever d.500 Intercorporate sales of inventory in 20X6: Sales reported by Lever Sales reported by Tropic Total sales Sales reported in consolidated income statement Intercompany sales during 20X6 7-28 $420.000 x .000 $ 90. $ 680.500 Investment in Tropic Company stock reported at December 31.000 $680.Chapter 07 .000 .000) (240.Intercompany Inventory Transactions P7-22 Incomplete Data a.000 x .000) $ 30.75 $ 97.000 (400.000 $ 60.75 $129. 30. $180. $ 60. Increase in fair value of buildings and equipment: Consolidated total Balance reported by Lever Balance reported by Tropic Increase in value b.000 (650.000 x 2 years) x .000 260.000 40.000) $ 40.500 $136. 20X6 Total book value Proportion of ownership held by Lever Lever's share of net book value Unamortized differential ($5.000 7.000 30. Unrealized inventory profit.000 Accounts receivable reported by Lever at December 31. Eliminating entry to remove the effects of intercompany inventory sales during 20X6: E(1) h.000 $215.000) $ 90.000) $ 9. 26.Intercompany Inventory Transactions P7-22 (continued) f.000 90. $125.000 Sales Cost of Goods Sold Inventory 30. 20X6: Accounts receivable reported for consolidated entity Accounts receivable reported by Tropic Difference Adjustment for intercompany receivable/payable: Accounts payable reported by Lever Accounts payable reported by Tropic Total reported accounts payable Accounts payable reported for consolidated entity Adjustment for intercompany receivable/payable Accounts receivable reported by Lever 7-29 $145. December 31.000 (445.000 $310.000 4.000) 17.000 170. 20X6: Inventory reported by Lever Inventory reported by Tropic Total inventory Inventory reported in consolidated balance sheet Unrealized inventory profit.000) $454.000 (89.000 . December 31.000 Unrealized inventory profit at January 1. 20X6: Cost of goods sold reported by Lever Cost of goods sold reported by Tropic Reduction of cost of goods sold for intercompany sales during 20X6 Adjusted cost of goods sold Cost of goods sold reported in consolidated income statement Additional adjustment to cost of goods sold due to unrealized profit in beginning inventory i.000 $107.000 (26.000 $106.000) $ 4.000 20.000 $ 86.000 (55.000 (211. 20X6 g.Chapter 07 . 000 x ($105. E(2) Income to Noncontrolling Interest Noncontrolling Interest Assign income to noncontrolling interest. 20X8: E(1) Income from Subsidiary Investment in Superior Filter Stock Eliminate income from subsidiary.000 . Eliminating entries.000 90.000 62.000 = $ 45.000 20.000 9. January 1 Investment in Superior Filter Stock Noncontrolling Interest Eliminate beginning investment balance.000) Consolidated amount: $100.000)] $135. January 1 Noncontrolling Interest Cost of Goods Sold Eliminate beginning inventory profit.[$45.000 = $100.000 32.000 248.000 Inventory 15.000) $135.000 / $150.000 / $150.Intercompany Inventory Transactions P7-23 Eliminations for Upstream Sales a.000 16. E(4) E(5) Retained Earnings.000 CGS recorded by Clean Air $205.Chapter 07 . 32.000 Sales 150.000 Cost of Goods Sold 135.000 x ($100.000 4. December 31.000 (70. E(3) Common Stock — Superior Filter Company Retained Earnings.000 Eliminate unrealized inventory profit: $15.000 Required elimination 7-30 .000 220.000 9.000 CGS recorded by Superior 105. 000 (15. December 31.000) $ 81.000) x .000 40.000) Net income of Superior Filter ($200.000 20.000) Less: Unrealized inventory profit Proportion of stock held by noncontrolling interest Noncontrolling interest 7-31 $ 90.000 .$15.$175.000 + $20.000 .Intercompany Inventory Transactions P7-23 (continued) b. $ 45.000 + $40.000 Noncontrolling interest.20 Income assigned to controlling interest c.000 260.000) $ 90. Computation of consolidated net income and income assigned to controlling interest: Operating income reported by Clean Air Products ($250.000 (9.000 .$140.000 .000) $335.000 .20 $ 67.Chapter 07 .000 .000 (15.000 $ 85.$20.$30.000) Inventory profit realized from 20X7 Unrealized inventory profit for 20X8 Consolidated net income Income assigned to noncontrolling interest ($40.000 x . 20X8: Common stock Retained earnings ($220. 000 / $45.500) 38.000 .000 3. 20X8 ($72.500 Income assigned to noncontrolling interest in 20X8: Realized income of Beta Corporation Proportion of stock held by noncontrolling interest $38.000) x ($7.$15.000 x x 7-32 .700 $13. 20X8 ($45.000 (1.30 .000) Unrealized profit. Consolidated net income for 20X8: Operating income of Ajax Corporation Unrealized profit.000 (4.$63.$60.000) x ($15. December 31.000 .000 / $30.000 2.000) Consolidated net income $20.500 Net income of Cole Corporation Profit realized from 20X7 ($72.000 / $72.$27.000) $37.000 (6.000 $131.Intercompany Inventory Transactions P7-24 Multiple Inventory Transfers a.000 Net income of Beta Corporation Profit realized from 20X7 ($30.000 (4. 20X8 ($35.Chapter 07 .500 Balance per Ajax Corporation Less: Unrealized profit Inventory balance per consolidated statement $15.500) 10.000 . c.10 $11.400 1.000) $ 76.000 .100 .000 .000) 17. December 31.000 / $72.000 Balance per Cole Corporation Less: Unrealized profit $12.000 (6. b.000 $22.$24.000 Inventory balance.000 (1.000) 9.000 / $35.000 Realized income of Cole Corporation Proportion of stock held by noncontrolling interest Income to noncontrolling interest $17.000) $80. December 31.000) $ 3.000) Unrealized profit.000) x ($10.000) x ($12.000) x ($18. 20X8: Balance per Beta Corporation Less: Unrealized profit $ 7. December 31. 10 $ 8.000) $82.000 .90) Proportionate share of 20X5 net income ($90.000 $90. $1.400.Chapter 07 .400. January 1 Net income for 20X5 Dividends paid in 20X5 Net assets reported.000) $1.000 x . 20X5 Other comprehensive income in 20X5 Adjusted net assets.000 (14.000 x .000 x .000 x .000 90.000 / $90.000 $90. 20X5 b.000 x .000 (14. 18. 20X5 Proportion of ownership held by noncontrolling interest Net assets assigned to noncontrolling interest 7-33 $1.000 x .430.000 x ($48.10 $ 143.40) 20X5 unrealized inventory profits $30. Consolidation with Inventory Transfers and Other Comprehensive Income Balance in investment account at December 31.000 6.200 Balance assigned to noncontrolling interest in consolidated balance sheet: Net assets reported by Tall.436. December 31.[$30.000) $1. 81.90) Balance in investment account December 31.600 .000) 20.000 x .000)] Realized net income Proportion of ownership held by noncontrolling interest Income to noncontrolling interest d.000 (60. 20X5: Proportionate share of Tall's net assets.000 Income to noncontrolling interests for 20X5: Net income reported by Tall 20X4 inventory profits realized in 20X5 ($15.000 (54. January 1 ($1.000 Investment income for 20X5: Net income reported by Tall Proportion of ownership held by Priority Investment income for 20X5 c.Intercompany Inventory Transactions P7-25 a. 20X5 Unrealized inventory profits at December 31.90) Proportionate share of other comprehensive income for 20X5 ($20. December 31.90) Proportionate share of dividends received ($60.000 x .305.260.000 $1.90 $81. 000 Eliminating entries.000 (2.200 54.000 + $8.000 27. 20X5 E(1) Income from Investment in Subsidiary Dividends Declared Investment in Tall Common Stock Eliminate income from subsidiary. 7-34 81.000 14.000 8.000 6.000 Consolidated net income for 20X5: Operating income of Priority Net income of Tall Total unadjusted income 20X4 inventory profits realized in 20X5 ($6.[$6. f.200 .000 $240.Intercompany Inventory Transactions P7-25 (continued) e.000 90.000 .000 x ($24.000) Inventory held by Tall Less: Unrealized profit $6.000 2.000) $328. December 31. $106.000 (14.000 / $36.000 $330. Inventory reported in consolidated balance sheet: Inventory held by Priority Less: Unrealized profit $120.000) Consolidated net income g. E(2) Income to Noncontrolling Interest Dividends Declared Noncontrolling Interest Assign income to noncontrolling interest.000) Unrealized inventory profits on 20X5 sales ($14.000 $204.000)] Inventory $100.000) 98.000 (16.Chapter 07 .000 + $2. 000 2.000 Retained Earnings. 90.000 14. 18.000 400.000 6. January 1 Noncontrolling Interest Cost of Goods Sold Eliminate beginning inventory profit of Tall Company.Intercompany Inventory Transactions P7-25 (continued) E(3) E(4) E(5) E(6) Other Comprehensive Income from Subsidiary (OCI) Investment in Tall Corporation Stock Eliminate other comprehensive income from subsidiary. January 1 Cost of Goods Sold Eliminate beginning inventory profit of Priority Corporation.000 2. 5.000 . Other Comprehensive Income to Noncontrolling Interest Noncontrolling Interest Assign other comprehensive income to noncontrolling interest.260. Common Stock — Tall Corporation Additional Paid-In Capital — Tall Corporation Retained Earnings. 8. January 1 Accumulated Other Comprehensive Income Investment in Tall Common Stock Noncontrolling Interest Eliminate beginning investment balance.000 200.000 790.000 140. 36.000 E(9) Sales Inventory Cost of Goods Sold Eliminate intercompany sale of inventory by Tall Company.000 2.Chapter 07 .000 1.000 76.000 10.000 7-35 18.000 34.000 E(8) Sales Inventory Cost of Goods Sold Eliminate intercompany sale of inventory by Priority Corporation.400 600 E(7) Retained Earnings.000 8. 240.000 $161.000 20. 60.Chapter 07 . 20.000 36.000 35.600 8.90) Inventory produced by Slinky in 20X6 ($200.000 210.25) Cost of goods sold reported in consolidated income statement $ 40.000 x .000 50.000 6.Intercompany Inventory Transactions P7-26 Multiple Inventory Transfers between Parent and Subsidiary a.000 30. b.40) Inventory produced by Slinky in 20X5 ($70.000 x .000 15.000 x .000 2. January 1 Noncontrolling Interest Cost of goods sold Inventory Eliminate beginning inventory profit of Slinky Company.000 E(4) Sales Inventory Cost of goods sold Eliminate intercompany sale of inventory by Slinky Company.000 Computation of cost of goods sold for consolidated entity: Inventory produced by Proud in 20X5 ($100.000 58. Eliminating entries: E(1) Retained earnings.000 E(2) Retained earnings.000 x .400 E(3) Sales Inventory Cost of goods sold Eliminate intercompany sale of inventory by Proud Company. 12.50) Inventory produced by Proud in 20X6 ($40.000 7-36 . January 1 Cost of goods sold Eliminate beginning inventory profit of Proud Company. 000 6.500 .200 3.800 + [($50.400 .200) .000) $100.000 + $20. January 1 50.000 Eliminating entries. Entries recorded by Bell on its investment in Troll: Cash Investment in Troll Corporation Stock Record dividends from Troll: $10.60 b.200 21.000 = ($82.000 x ($14.000 + $50.000 E(2) Income to Noncontrolling Interest Dividends Declared Noncontrolling Interest Assign income to noncontrolling interest: $11.000 4.000 7-37 6.200) x .Intercompany Inventory Transactions P7-27 Consolidation following Inventory Transactions a.$21.000 18.500 .60 Investment in Troll Corporation Stock Income from Subsidiary Record equity-method income: $30.000 + $3.$20.$25.000 / $28.$4.500 = $13. January 1 Noncontrolling Interest Cost of Goods Sold Eliminate beginning inventory profit of Troll Corporation: $3.Chapter 07 .30 35.000 Land 18.360 E(5) Sales Cost of Goods Sold Inventory Eliminate intercompany upstream sale of inventory by Troll Corporation: $4.400 = ($42.000) x .200 = ($35. 18.000 E(6) Sales Cost of Goods Sold Inventory Eliminate intercompany downstream sale of inventory by Bell Company: $6.800 + $55.000) x .680 100.400 30.680 E(3) Common Stock — Troll Corporation 100. 20X2: E(1) Income from Subsidiary Dividends Declared Investment in Troll Corporation Stock Eliminate income from subsidiary.($100.800 4. 6.200 = ($100.000 12.680 = ($30.60] $67.800 = $82.000 + $18.40 E(4) Retained Earnings.000 7.000 x .000 18. December 31.000 x .800 67.000) 28.000) x .000 .000 .40 11.040 1.000 Retained Earnings.500 6.500) x .20 2.000 Investment in Troll Corporation Stock Noncontrolling Interest Eliminate beginning investment balance: $18. 220 227.000 61.000 110.000 520.000 50. from above Noncontrolling Interest 802.000 (10.000 6.Chapter 07 .400 (5) 30. carry forward Ret. Depreciation Accounts Payable Bonds Payable Bond Premium Common Stock Bell Company Troll Corporation Retained Earnings.000 51.800 120.680) 80.180 1.000 (3)100.100 ) 91.000 55.180 (40.000 144.200 200.000 (165.200 317. 120.200 7-38 264.200 200.000 1.200 55.000 257.000) Sales Depreciation Expense Interest Expense Debits Consolidated Net Income Income to Noncontrolling Interest Income.700 268.500 (2) 11.000) 268.900 (11.900 (4) 486.700 (5) (6) 4.000 1.000 870.000 (1) 18. 20X2 Item Bell Co.800 80.900 250.040 92.700 6.680 92.200 Credits 802.000 68. Bell Company and Troll Corporation Consolidation Workpaper December 31.800 200.520 1.000 30.Intercompany Inventory Transactions P7-27 (continued) c.182.000 (130.700 (1) (2) 144.000 (90.180 120.000 Consolidated 257.720 (3) 18.680 (3) 50.360 (2) 7.200 55. carry forward Cash and Accounts Receivable Inventory 277.000) 30.000 (4) 2. Earnings.200 Eliminations Debit Credit (5) 35.000 (4) 3.800 (6) 21.680 277.800 486. 31.300 88.400 60. from above Dividends Declared Ret.220 308.200 175.000 30.080 .000 65.200 230.000 112.000 218. 200.000 350.000 20.000 70.000 14.000 41.200 6.000 Land Buildings and Equipment Investment in Troll Corporation Stock 40.000 1.200 70. Dec.000 (3)100.000 100. Jan.000 105.000 25.200 75. Earnings.000 80.182.000 (6) 28.000) 87.000 99.100 40.680 (3) 67 200 264.000 Income from Subsidiary Credits Cost of Goods Sold 18.000 69.000 280.720 65.080 73.960 80.500 (1) 12. 1 Income.000 87.000 Debits Accum.200 (40.800) 15.600 104.000 Troll Corp.000 4. Intercompany Inventory Transactions 7-39 .Chapter 07 . 800 36.200 130.30 E(3) Common Stock — West Company Retained Earnings.200 + $124.500) x .000 7-40 3.500 10.000 Land.$10.000 = $291.Intercompany Inventory Transactions P7-28 Consolidation Workpaper a.Chapter 07 . Eliminating entries: E(1) Income from Subsidiary Dividends Declared Investment in West Company Stock Eliminate income from subsidiary.000 $305.000 + $150. E(2) Income to Noncontrolling Interest Dividends Declared Noncontrolling Interest Assign income to noncontrolling interest: $7.500 1.800 .000 . 14.950 = ($20.000 30.000 .000 36.000 9.500 $130.450 305.000 Retained Earnings.950 150. January 1 Noncontrolling Interest Cost of Goods and Services Eliminate beginning inventory profit of West Company. Buildings and Equipment (net) Goodwill Differential Assign beginning differential.800 = ($250.000 + $36.000 7. January 1 Differential Investment in West Company Stock Noncontrolling Interest Eliminate beginning investment balance: $36.200 = $315.000) x .000 250.000 + $30.30 E(4) E(5) 14.500 6.000 + $1.700 .$25.000 22. 21.$380. 000 x 9)] 7-41 7.($1.500 -$8.000 $9.000 .000 E(8) Sales 90.000 = [$95. January 1 Cost of Goods and Services Eliminate beginning inventory profit of Crow Corporation.000 .000 .500 = $9.000 = $62.000 (42.000 / $90.150 15.($1.150 = [$15.000 25.70 $3.000 Inventory 8.000) Consolidated amount [$54.30 $1.000 Eliminate intercompany downstream sale of inventory by Crow Corporation: $8.$37. 15.Chapter 07 . January 1 Noncontrolling Interest Depreciation Expense Land.350 3.000 37.000 .000) x ($20.500 x 3)] x .000 62.000 E(7) Sales Cost of Goods and Services Inventory Eliminate intercompany upstream sale of inventory by West Company: $25.000 CGS recorded by Crow Corporation 70.500 x 4)] [$120.000 / $90.350 = [$15.000 = ($90. Buildings and Equipment (net) Eliminate unrealized gain on equipment: $7.000 Cost of Goods and Services 82.000 x ($70.000 = $ 54.500 x 3)] x .000)] $ 82.$54.000 CGS recorded by West Company $ 124.500 9.000 .000 Required elimination E(9) Retained Earnings.000 1.($9.000 .($8.000 .000) $82.Intercompany Inventory Transactions P7-28 (continued) E(6) Retained Earnings. 000 82.450 idated 348.000 1.000 7.000 68.200 (35. 300.000 Depreciation Expense Debits Consolidated Net Income Income to Noncontrolling Interest Income. 20X9 Crow West Item Sales and Service Revenue Corp.000 7-42 30.500 (7.000 445. carry forward 607.500 (2) 6.700 867.000 37. Dec.000 200.000 867.000 (5.000 60.000 (6) 15.300 3.550 524.000) 20.000 250.000 15.Chapter 07 .000 (35.000 (9) 3.300 200. carry forward 20.000 110.200 166.000 (5) 21.000 (240.500 (1) (2) 467. from above Noncontrolling Interest Credits Debit (7) 62.000 Retained Earnings.000 186. Buildings & Equipment (net) Investment in West Company Stock Eliminations (9) 9.000 525.450 (3)130.550 610.500 1.000 200.150 701.000 250.000 Land.500 (7) 25.500 (254.000) (180.000 85.500) 93.500 (3) 305.000 (4) 14.000 30.000 314.100 990.000 Differential Goodwill Debits Accounts Payable Common Stock Ret.450 348. 200.000 Income from Subsidiary Credits Cost of Goods and Services 14.350 173. Crow Corporation and West Company Consolidation Workpaper December 31.200 (4) 36.950) 85.000 (1) 14.000) 575.300 .950 165.000 Consol- Credit (5) (6) (7) (8) (9) 40.950 173.000) 74.000 Cash and Receivables Inventory 81.000 (3) 36. 31.000 (2) 445. from above Dividends Declared 74.000 Income.300 277.000 170. Earnings.500 (3)250.000 (1) 10.000 990.000 270.000 (8) 8.000 (3)150.Intercompany Inventory Transactions P7-28 (continued) b.000 150.000 22.000 30.800 701.950 315.000) Retained Earnings.000 270.000 575.000 (9) 7.500 170.000 (8) 90.000 200.300 90.000 642.000 265.000 150.200 125.000 265.000 467.000 607.000 200.000 (4) 22. Jan. 1 568.650 85.000 Co.300 (5) 9.500 165. Intercompany Inventory Transactions P7-28 (continued) c.40) $128.429 Eliminating entries: E(1) Sales Inventory Cost of Goods Sold Elimination of sales by Bunker to Harrison: $12.500 x 4)] x .$37.000) x .000) $270.70 Consolidated retained earnings $607.000 232.000 .500) (6. $660.000 / $90.000 E(2) Sales Inventory Cost of Goods Sold Elimination of sales by Harrison to Bunker: $8.000 .000) $343.000 $660.000) x ($20.000 128.2 $425.70 Unrealized profit on equipment transfer [($15.($48. Retained earnings reconciliation.000 .000 = $140.000 / 1.000 (128.000 Consolidated $790.000 ÷ 1.$8.4 $471.000 7-43 12.000) Unrealized profits on West Company's books ($62.000 = $42.000 (240.Chapter 07 .429 $510.000 140.($42.000) (17.000 . Consolidated sales for 20X8: Sales reported Intercorporate sales Sales to nonaffiliates b.000 Harrison Co. 20X9: Retained earnings.000 .000) $193. Crow Corporation Unrealized profits on Crow Corporation's books ($90. $510.000 Consolidated cost of goods sold: Total sales reported Ratio of cost to sales price Cost of goods sold Amount to be eliminated (see entry) Cost of goods sold adjusted $536.000 240.000 ÷ 1.000) $520.000 .429 (232.000 8.300) $575.$12.000 (8.000 .000 (140. December 31.000 / 1.000 .$54.20) $232.200 P7-29 Computation of Consolidated Totals a.000 = $240.000 = $48. Bunker Corp.($1. 000 $70. 20X8 $42.000 .000 30.Intercompany Inventory Transactions P7-29 (continued) c.000) 7-44 $40.000) Inventory reported by Harrison Company Unrealized profits Inventory balance.000) $70.Chapter 07 .000 Less: Unrealized inventory profits of Bunker Unrealized inventory profits of Harrison Consolidated net income Less: Income assigned to noncontrolling interest ($20.000 .000 (12. (2.000 20. December 31.400) $67.000) (8.20 Income to controlling interest 20X8 d.000 $90.$8.600 Inventory balance in consolidated balance sheet: Inventory reported by Bunker Corporation Unrealized profits $48.000 (8. Operating income of Bunker Corporation (excluding income from Harrison Company) Net income of Harrison Company $70.000) x .000 (12. 000 (2.200 = ($25.000 10.100 = ($25.100 E(3) Common stock – Bock Company Retained Earnings.000 + $9.000 + $46.000 .000 / 5 years) x 1 year Unamortized differential.200 = ($70.$7.000 / 10 years $108.$7.000) $46.000 60.000) (7.000 20.000 .000 .500 = $15.000 .$2.000) x .800 = ($70.000 46.000) Differential at acquisition Amortization of amount assigned to: Buildings and equipment [($20. Eliminating entries: E(1) Income from Subsidiary Dividends Declared Investment in Bock Company Stock Eliminate income from subsidiary: $11.000 = $20.000 $2.30 $4.3 70.000 + $30.70 $10.000 .200 E(2) Income to Noncontrolling Interest Dividends Declared Noncontrolling Interest Assign income to noncontrolling interest: $5.200 52.$2.500 46.000 .500 = $15.000 .000 / 10 years] x 1 year Patent ($35.000) x .000 x .000 + $60.7 $52.800 Computation of unamortized differential Fair value of compensation given by Pine Fair value of noncontrolling interest Less: Book value of Spencer's net assets ($70.000 28.500 700 4.$7. 20X7 E(4) Buildings and Equipment Patent Accumulated Depreciation Differential Assign beginning differential: $28.000) $ 55.000 = $35.000 x .Intercompany Inventory Transactions P7-30 Intercompany Transfer of Inventory and Land a.500 600 123.000 + $46.000) x .500 (100.000 +$60.000 7-45 2. January 1 Differential Investment in Bock Company Stock Noncontrolling Interest Eliminate beginning investment balance: $123.000 46. January 1.70 11.30 5.Chapter 07 .$8.000) x . ($27.500 7-46 2.800 = ($48.000 10.000 = $21.$32.000) x .000 .000 .70 $4.800 = $7.000 = $20.200 3.000 7.($21.000 7. January 1 Noncontrolling Interest Land Eliminate unrealized profit on land: $15.Chapter 07 .000 26.000 E(9) Retained Earnings.500 4.800 15.000 .000 x 2/3) 90.000 = $37.000 82.000 7.800 E(7) Sales Cost of Goods Sold Inventory Eliminate intercompany sale of inventory by Bock Company: $8.($7.000 .000 = $35.000 x 2/3) $7.000 .$22.000 = $24.$32.600 .000 Retained Earnings.000 8.000 / 10 years $7.600 x 1/2) 30. January 1 Noncontrolling Interest Cost of Goods Sold Inventory Eliminate beginning inventory profit of Bock Company: $11.200 = ($48.000 .000 / 5 years 2.000) x .000 .($24.200 4.30 $9.000 x 2/3) 11.000 E(8) Sales Cost of Goods Sold Inventory Eliminate intercompany sale of inventory by Pine Corporation: $3.000 9.Intercompany Inventory Transactions P7-30 (continued) E(5) E(6) Depreciation Expense Amortization Expense Accumulated Depreciation Patent Amortize differential: $2.000 = $27. 100 (30.000 (1) 700 (3)123.000 85.300 117.Intercompany Inventory Transactions P7-30 (continued) b.100) 59. Jan.000 964.000 Retained Earnings.800 201.000 79.800 25.000 (15.100 145.700 117.000 5.900 (30.200 (6) 7.000 (6) 11.200 (1) 10.000 278.200 (5) 7. from above Dividends Declared 62. Pine Corporation and Bock Company Consolidation Workpaper December 31.200 (5) 2.000 (3) 46.000 Cash and Accounts Receivable Inventory 15.000 13.800 186.100 60.400 59. 20X3 Pine Corp. Sales 260.000 16.300 117.200 Item Depreciation Expense Interest Expense Amortization Expense Debits Consolidated Net Income Income to Noncontrolling Interest Income.000 (2) 5.000 Consolidated 132.200 7.000) 62.900 724.200 .000 Other Income Income from Subsidiary Credits Cost of Goods Sold 13.800) 64.000 15.300 265.600 148.000 (4) 28.000) 25.000 21.000 125.600 37.000 340.000 (213. 31.000 (5) 7.800 (5.600 (1) 11. Bock Co.200 (9) 10.600 7-47 (6) 9.800 20.000 21.500 227. Dec.500 (2) 4.000 (4) 20.200 (4) 46.400 165.000 80.000 Income.900 70.600 35.000 620.000 (7) 82.000 40.600 11.000 260.000 125.000) (100.000 356.800 (9) 15.200 105.000 (8) 26.500 145.000 Land Buildings and Equipment Investment in Bock Company Stock Differential Patent Debits Eliminations Debit Credit (7) 90.000) 147.000 123.000 181.700 177. carry forward 171. carry forward (222.000) Retained Earnings.000 (7) 8.Chapter 07 .000 (8) 3.200 (3) 60.100 37.200 284. 1 139.000 21.000 (8) 30. 300 120.300 (2) 600 (3) 52.000 (3) 70.600 (6) 4.300 44.000 132.900 Eliminations Debit Credit (4) 2.000 1. Accum.000 80.800 400.800 (9) 4. Bock Co.600 120.Chapter 07 .000 35.200 147.000 127.000 Consolidated 224.000 70.500 400.400 200. Depreciation 140.000 1. from above Noncontrolling Interest 92.600 Credits 724.000 171.000 70.200 7-48 .000 Accounts Payable Bonds Payable Bond Premium Common Stock Pine Corporation Bock Company Retained Earnings.100 356.100 964.000 227.400 300.Intercompany Inventory Transactions P7-30 (continued) Item Pine Corp.000 100.000 (5) 2. 100 $ 37.000 21.000 7-49 $265. Pine Corporation and Subsidiary Consolidated Balance Sheet December 31.000 396.000 21.700 .100 44. 20X3 Cash and Accounts Receivable Inventory Land Buildings and Equipment Less: Accumulated Depreciation Patent Total Assets $620.000 13.800 (5.000) Accounts Payable Bonds Payable Bond Premium Stockholders’ Equity: Controlling Interest: Common Stock Retained Earnings Total Controlling Interest Noncontrolling Interest Total Stockholders’ Equity Total Liabilities and Stockholders' Equity $300. 20X3 Sales Other Income Total Income Cost of Goods Sold Depreciation Expense Interest Expense Amortization Expense Total Expenses Consolidated Net Income Income to Noncontrolling Interest Income to Controlling Interest $148.200 $127.600 311.100 $267.200 7.600 (213.600 $120.Chapter 07 .600 37.000 147.200 105.Intercompany Inventory Transactions P7-30 (continued) Note: Financial statements are not required.000 (224.400 301.000 181.000 $740.000 1.200 Pine Corporation and Subsidiary Consolidated Income Statement Year Ended December 31.800) $ 64.600 $278.200 $740.100) $ 59. 000 + $16. 21.000) $147.000 8.000 150.$9. 20X3 Retained Earnings.Intercompany Inventory Transactions P7-30 (continued) Pine Corporation and Subsidiary Consolidated Retained Earnings Statement Year Ended December 31.000 12.700 $177.000 96.000 + $8.000 9.000 7-50 50.600 E(3) Common Stock – Concerto Company Retained Earnings. December 31.000 . December 31. January 1 Differential Investment in Concerto Company Stock Noncontrolling Interest Eliminate beginning investment balance: $40.000 .100 Dividends Declared.Chapter 07 .000 . Eliminating entries.600 144.100 (30.000 E(2) Income to Noncontrolling Interest Dividends Declared Noncontrolling Interest Assign income to noncontrolling interest: $9.$10. January 1.600 = ($35.000 = $24.000 1.000 40. 20X3 $117. 20X3 Income to Controlling Interest.40 9. 20X3 Retained Earnings. 20X6: E(1) Income from Subsidiary Dividends Declared Investment in Concerto Company Stock Eliminate income from subsidiary.400 59.000) x . 20X3 P7-31 Consolidation Using Financial Statement Data a. 000 .800 3.($7.Chapter 07 .000 4. 6.000 2.40) 4.Intercompany Inventory Transactions P7-31 (continued) E(4) Goodwill Differential Assign differential to goodwill.000 / 1.40) 22.000 E(10) Sales Cost of Goods Sold Inventory Eliminate intercompany sale of inventory by Concerto Company: $9.000 / 1.000 . 40. 10. January 1 Cost of Goods Sold Eliminate beginning inventory profit of Bower: $14.($54.000 8.000 / 1.000 .000 4.000 81.200 E(9) Sales Cost of Goods Sold Inventory Eliminate intercompany sale of inventory by Bower: $2.000 = $7.000 20.000 E(8) Retained Earnings.000 .000 = $54.000 E(5) Goodwill Impairment Loss Goodwill Recognize impairment of goodwill.000 = $48.000 E(6) Retained Earnings.000 .000 10.000 7-51 40.000 9.000 10.20) 90.20) 4. January 1 Noncontrolling Interest Land Eliminate unrealized gain on land.($14.($48.000 E(7) Retained Earnings.000 / 1. January 1 Noncontrolling Interest Cost of Goods Sold Eliminate beginning inventory profit of Concerto Company: $8. Chapter 07 - Intercompany Inventory Transactions P7-31 (continued) b. Bower Corporation and Concerto Company Consolidation Workpaper December 31, 20X6 Bower Corp. Concerto Co. Sales 400,000 200,000 Income from Subsidiary Credits Cost of Goods Sold 21,000 421,000 280,000 200,000 120,000 Item Depreciation and Amortization Goodwill Impairment Loss Other Expenses Debits Consolidated Net Income Income to Noncontrolling Interest Income, carry forward 25,000 15,000 35,000 30,000 (340,000) (165,000) 81,000 35,000 Retained Earnings, Jan. 1 293,800 150,000 Income, from above Dividends Declared 81,000 374,800 (50,000) 35,000 185,000 (20,000) Ret. Earnings, Dec. 31, carry forward 324,800 165,000 7-52 Eliminations Debit Credit (9) 22,000 (10) 90,000 (1) 21,000 488,000 (7) 4,000 (8) 8,000 (9) 20,000 (10)81,000 9,600 152,600 113,000 (3)150,000 (6) 6,000 (7) 4,000 (8) 4,800 152,600 113,000 (1) 12,000 (2) 8,000 317,400 488,000 287,000 40,000 10,000 65,000 (402,000) 86,000 (5) 10,000 (2) Consolidated 133,000 (9,600) 76,400 279,000 76,400 355,400 (50,000) 305,400 Chapter 07 - Intercompany Inventory Transactions P7-31 (continued) Item Bower Corp. Concerto Co. Cash Accounts Receivable Inventory 26,800 80,000 120,000 35,000 40,000 90,000 Land Buildings and Equipment Investment in Concerto Company Stock 70,000 340,000 20,000 200,000 Differential Goodwill Debits Eliminations Debit Credit (9) 2,000 (10) 9,000 (6) 10,000 153,000 789,800 385,000 Accumulated Depreciation Accounts Payable Bonds Payable Common Stock Retained Earnings, from above Noncontrolling Interest 165,000 80,000 120,000 100,000 85,000 15,000 70,000 50,000 324,800 165,000 Credits 789,800 385,000 7-53 (3) 40,000 (4) 40,000 (1) 9,000 (3)144,000 (4) 40,000 (5) 10,000 61,800 120,000 199,000 80,000 540,000 30,000 1,030,800 250,000 95,000 190,000 100,000 (3) 50,000 317,400 (6) 4,000 (8) 3,200 454,600 Consolidated 133,000 (2) 1,600 (3) 96,000 454,600 305,400 90,400 1,030,800 Chapter 07 - Intercompany Inventory Transactions P7-32 Intercorporate Transfers of Inventory and Equipment a. Consolidated cost of goods sold for 20X9: Amount reported by Foster Company Amount reported by Block Corporation Adjustment for unrealized profit in beginning inventory sold in 20X9 Adjustment for inventory purchased from subsidiary and resold during 20X9: CGS recorded by Foster ($30,000 x .60) CGS recorded by Block Total recorded CGS based on Block's cost ($20,000 x .60) Required adjustment Cost of goods sold b. (15,000) $18,000 20,000 $38,000 (12,000) (26,000) $822,000 Consolidated inventory balance: Amount reported by Foster Amount reported by Block Total inventory reported Unrealized profit in ending inventory held by Foster [($30,000 - $20,000) x .40] Consolidated balance c. $593,000 270,000 $137,000 130,000 $267,000 (4,000) $263,000 Income assigned to noncontrolling interest: Net income reported by Block Corporation Adjustment for realization of loss on equipment sold to Foster in 20X7 Adjustment for realization of profit on inventory sold to Foster in 20X8 Adjustment for unrealized profit on inventory sold to Foster in 20X9 Realized net income of Block for 20X9 Proportion of ownership held by noncontrolling interest Income assigned to noncontrolling interest 7-54 $70,000 (3,000) 15,000 (4,000) $78,000 x .10 $ 7,800 Chapter 07 - Intercompany Inventory Transactions P7-32 (continued) d. Amount assigned to noncontrolling interest in consolidated balance sheet: Block Corporation common stock outstanding Block Corporation retained earnings, January 1, 20X9 Net income for 20X9 Dividends paid in 20X9 Book value, December 31, 20X9 Adjustment for unrealized loss on equipment $24,000 - [($24,000 / 8 years) x 3 years] Adjustment for unrealized profit on inventory sold to Foster Realized book value of Block Corporation Proportion of ownership held by noncontrolling interest Balance assigned to noncontrolling interest e. $ 50,000 165,000 70,000 (20,000) $265,000 15,000 (4,000) $276,000 x .10 $ 27,600 Consolidated retained earnings at December 31, 20X9: Balance reported by Foster Company, January 1, 20X9 Net income for 20X9 Dividends paid in 20X9 Balance reported by Foster Company, December 31, 20X9 Adjustment for proportionate share of unrealized loss on sale of equipment ($15,000 x .90) Adjustment for proportionate share of unrealized gain on inventory ($4,000 x .90) Consolidated retained earnings, December 31, 20X9 f. $248,500 171,000 (40,000) $379,500 13,500 (3,600) $389,400 Eliminating entries: E(1) Income from Subsidiary Dividends Declared Investment in Block Corporation Stock Eliminate income from subsidiary. 63,000 E(2) Income to Noncontrolling Interest Dividends Declared Noncontrolling Interest Assign income to noncontrolling interest. 7,800 E(3) Common Stock — Block Corporation Retained Earnings, January 1 Investment in Block Corporation Stock Noncontrolling Interest Eliminate beginning investment balance. 50,000 165,000 7-55 18,000 45,000 2,000 5,800 193,500 21,500 000 3.$48.90 $1.000 / 8 years) x 3 years] 42.000 4.500 7-56 16.200 1.500 1.000 x 2 years)] x .Intercompany Inventory Transactions P7-32 (continued) E(4) Buildings and Equipment Depreciation Expense Retained Earnings.000 / 10 years) . 30. January 1 Noncontrolling Interest Accumulated Depreciation Eliminate intercorporate sale of equipment: $42.200 = [$24.000 .000 / 8 years) $16.000 26.800 27. January 1 Noncontrolling Interest Cost of Goods Sold Eliminate beginning inventory profit of Block Corporation.000 = $90.000 E(5) Sales Cost of Goods Sold Inventory Eliminate intercompany sale of inventory by Block Corporation.000 = ($90.000 = [($90.000 x 2 years)] x .000 E(6) Retained Earnings.000 . 13.($3.[($48.($48.($3.000 / 10 years) x 5 years] .000 .800 = [$24.Chapter 07 .000 .000 $3.000 15.10 $27. 000 41. carry forward Foster Co.000 904.000 140. 415. 815.400 244.000 57.Intercompany Inventory Transactions P7-32 (continued) g.000 (733.200 178.000 63.500 1. 20X9 Item Sales Other Income Income from Subsidiary Credits Cost of Goods Sold Depreciation Expense Other Expenses Debits Consolidated Net Income Income to Noncontrolling Interest Income.000 282.000) 70.800 (3)165. Earnings.400 7-57 (4) 3.000 10.000 500.000 95.500 822.000 130.262. Jan. Earnings.000 26.000 (5) 26.000 (1) 45.000 80.000 792.400 .400 90.Chapter 07 .000) 389.000 250.000 263.000 171.000) 70.000 (6) 15.800 103.000 15.000 187. Dec.000 40.000) Ret.000 (20.000 235.000 41.200 41.00 0 593.200 (5) 4.400 170.000 (2) 7.500 (5) 30.000) 186.800 Consolidated 1.000 419.000 597. Foster Company and Block Corporation Consolidation Workpaper December 31.000 (1.500 165.659.200.000 (1) 18.500 (40. 1 248.000 60.000 Income.000 50.000 Cash Accounts Receivable Other Receivables Inventory Land Buildings and Equipment Investment in Block Corporation Stock Eliminations Debit Credit 1.000 Debits 238.000 1.400 (40. carry forward 379.000 (3)193. from above Dividends Declared 171.800) 178.000 (4) 16.000 (2) 2.000 80. 31.000 170.000 (6) 13.000 (1) 63.000 (4) 42.000 (7.000 270.000 137.300 77.000 Block Corp.000 75.500 103.055.500 215.200 429.200 251.000 63.241.000 430.000 45.000 15.000 Ret.000) (360. 500 257.800 (3) 21.000 98.000 2.200 389.800 375.659.400 375.000 450.800 .000 115.000 250. 155.400 50.600 1.000 110.000 (3) 50.000 1. Eliminations Debit Credit 75.000 Block Corp.000 20.400 210.400 (6) 1.000 200.500 (2) 5.Chapter 07 .Intercompany Inventory Transactions P7-32 (continued) Item Accum.400 7-58 282. from above Noncontrolling Interest Credits Foster Co.000 (4) 27.000 95.500 Consolidated 110.000 63.300 77.000 597.000 379.000 215.000 2.500 (4) 1.262.000 210.000 35.800 27. Depreciation Accounts Payable Other Payables Bonds Payable Bond Premium Common Stock Foster Company Block Corporation Additional Paid-In Capital Retained Earnings. 000 [7] 90.587.000 410. net 1.000 2.000 [2] 700.000 500.000 Investment in Slim 1.605.000 100.942.900 [1] 50.400.205.000 3.900 .000 Consol- 120.000 400.170. and Subsidiary Consolidated Balance Sheet Workpaper December 31.00 0 140.000 [6] 3.000 670.000 90.000 500.100 [2] 200.000 [3] 900 [4] 5.000 [5] 100.900 [b] [1] [2] 900 450.965.000 7-59 Idated [3] [4] [5] [7] [1] 500.000 90.000 200.000 [a] 90. 105.000 [a] Goodwill Totals Adjustments and Eliminations 3.000 Plant and Equipment. 20X6 Cash Assets Accounts and Other Current Receivables Merchandise Inventory Pine Corp. Slim Corp.000 1.000.000 305.000 920.000 Liabilities and Stockholders' Equity Accounts Payable and Other Current Liabilities Common Stock ($10 par) Retained Earnings Debit Credit [b] 900 1.000 335.000 15.000 [6] 3.000 1.000 Noncontrolling 900 5.Chapter 07 .000 500.000 810.Intercompany Inventory Transactions P7-33 Consolidated Balance Sheet Workpaper [AICPA Adapted] Pine Corp.052.000 700.000 3.000 120.000 249. 00 0 7-60 1.Chapter 07 .700 3.000 1.205.000 .Intercompany Inventory Transactions Interest.690.605. 10 percent Totals [2] 3.690.000 140.000 1.942.700 90. 000) Inventory profit $ 300.000 $101.000 130.000 (600. 20X6 Increase in retained earnings after dividend declaration Add: Dividend declaration Slim Corporation's net income for year ended December 31. 20X6 Total $200.000 600.000 [4] To eliminate intercompany accrued interest: $100.000 $ 15.900 $900 $1.000 (800.000 $200.000 [6] To eliminate intercompany profit in Slim Corporation's December 31 inventory: Sales from Pine Corporation to Slim Corporation 5 percent remaining in Slim Corporation's December 31 inventory Multiply by .000 [1] [2] To record goodwill: Fair value of compensation given by Pine Fair value of nonconctolling interest at acquisition Slim Corporation's book value at January 1.000) $ 500.000 $900.20($60.000 To eliminate 90 percent of Slim Corporation's book value and record noncontrolling interest: Common stock Retained earnings at December 31. 20X6: Common stock Retained earnings Total book value Goodwill $700.170.000 Pine Corporation's 90 percent share Minority interest’s 10 percent share Total $810. 90 percent [b] To record Pine Corporation's share of dividend declared by Slim Corporation: 90 percent of $1.000 700.000 $ 90.000 90.20 $ 3.000 To eliminate intercompany trade account receivable and payable 7-61 $90.000 [3] To eliminate intercompany dividend receivable and payable: 90 percent of $1.000) $100.000 $900.000 x .000 [7] $900 $5.Intercompany Inventory Transactions P7-33 (continued) Explanations of Workpaper Adjustments and Eliminations [a] To record net income of Slim Corporation accruing to Pine Corporation: Slim Corporation's retained earnings at December 31. 20X6 Slim Corporation's retained earnings at January 1.000 . 20X6 Pine Corporation's share.000 @ 10 percent x ½ year [5] To eliminate intercompany loan: $100.000 1.Chapter 07 .000 / $300. 000 (3) Income from Subsidiary Investment in Sharp Company Stock Amortize differential: $4.000 20.000 1.80 20. December 31.000 x .000 32.000 = ($50.000 35.000 E(2) Income to Noncontrolling Interest Dividends Declared Noncontrolling Interest Assign income to noncontrolling interest: $6.000 = $50.000 .000 Buildings and Equipment Depreciation Expense Accumulated Depreciation Differential Assign differential: $20.000 20.000 .80 32.80 4.000 (2) Investment in Sharp Company Stock Income from Subsidiary Record equity-method income: $40.600 = ($40.000 74.000 .000) x .000 20.000 Eliminating entries.000 – [($50.000 20.$10.000 35. $35.000 / 10 years) x .20 6.000 E(4) 7-62 28.000 = ($50.000 4. b.000 + $8.000 . 20X7: E(1) Income from Subsidiary Dividends Declared Investment in Sharp Company Stock Eliminate income from subsidiary: $28.$5.000 = $32.000 x .600 E(3) Common Stock — Sharp Company Additional Paid-In Capital Retained Earnings.000 215.000 / 10 years) x 4 years 50.$4.000 5.600 296.000 / 10) x 3 years] 100. Basic equity-method entries for 20X7: (1) Cash Investment in Sharp Company Stock Record dividend from Sharp Company: $25.000 5.000 8.Intercompany Inventory Transactions P7-34 Comprehensive Worksheet Problem a. January 1 Differential Investment in Sharp Company Stock Noncontrolling Interest Eliminate beginning investment balance.Chapter 07 . 500 (12.500 E(10) Depreciation expense adjustment: Depreciation recorded ($50.000 E(8) Sales Cost of Goods Sold Inventory Eliminate intercompany sale of inventory by Randall Corporation.250 x 2 years) Required increase $52.000 9.500 Accumulated depreciation adjustment: Required balance ($3.000 2.Intercompany Inventory Transactions P 7-34 (continued) E(5) Retained Earnings.000 / 20 years) Required decrease $ 6. 2.000 10. 10.750) $ 2.000 / 8 years) Depreciation required ($75.400 1.500 40.250 (3.000 . 6.000 E(7) Sales Cost of Goods Sold Inventory Eliminate intercompany sale of inventory by Sharp Company.000 2.000 E(9) Buildings and Equipment Retained Earnings.000 3.750 x 14 years) Balance recorded ($6. 45.000 35. 25.500) $40.000 17.000 10. January 1 Cost of Goods Sold Eliminate beginning inventory profit of Randall Corporation.000 Accounts Payable Accounts Receivable Eliminate intercorporate receivable/payable.Chapter 07 .600 E(6) Retained Earnings. 12. January 1 Noncontrolling Interest Cost of Goods Sold Eliminate beginning inventory profit of Sharp Company.000 7-63 8. January 1 Depreciation Expense Accumulated Depreciation Eliminate intercorporate sale of equipment. 000 (5) 6.900 215.500 Consolidated 81. and Amortization Other Expenses Debits Consolidated Net Income Income to Noncontrolling Interest Income.600) 78.Intercompany Inventory Transactions P7-34 (continued) c.500 (2) 6.600 56.600 56. from above Dividends Declared 78.000 18.400 (6) 2.000 337.000 Other Income Income from Subsidiary Credits Cost of Goods Sold 20.400 28.400 416.300 .000 30.400 424.000) 348. 1 345.300 (50. Earnings. Earnings.000 24. carry forward 280.300 230.000 548.000) 78. 31.000 (2) 5.000 (8) 12.000 (4) 5.000 202.400 564.000 (7) 35.500 96.300 398.000 (9) 17.500) 84.000 (9) 2. Sharp Co.400 40.300 320.000 (5) 8.000) 40.000 Item Deprec.000 (470. 20X7 Randall Corp. Jan.000 (25.000 255.000 250.600 96.000) Ret.500 42.500 (3)215.000 Income.000 52.000 30.400 (1) 28.000) (240.000 Ret.300 (50. Sales 500.000 (8) 9.000 78.000 693. carry forward 374.500 743.000 (658.900 (6. Randall Corporation and Sharp Company Consolidation Workpaper December 31.Chapter 07 . Dec.000 7-64 Eliminations Debit Credit (7) 45.500 (1) 20.000 50.000 20.000 (6) 2. 000 1.075.000 1.000 (3)100. Cash Accounts Receivable Inventory 130.000 374.000 70.284.000 (3) 20.000 Differential Debits Eliminations Debit Credit (4) 50.000 (4) 35.000 4.300 80.600 (3) 74.284.000 (7) 10.300 590.100 1.100 140.622.Chapter 07 .800 100.300 590.000 105.000 Credits 200.500 (2) 1.000 337.200 100. Sharp Co.000 267.000 (1) 8.300 490.300 230.000 15.000 (4) 20.000 Buildings and Equipment 600.000 110.000 300.200 400.000 4.000 400. Depreciation 310.500 1.300 74.000 1.300 .000 Investment in Sharp Company Stock 304.000 7-65 (10) 10.600 579.300 140.000 170.000 579.000 (9) 40.000 (8) 3.000 120.000 10.Intercompany Inventory Transactions P7-34 (continued) Item Randall Corp.000 (5) Consolidated 81.000 (10) 10.000 Accounts Payable Bonds Payable Bond Premium Common Stock Additional Paid-In Capital Retained Earnings.000 Accum.622.000 (9) 25.000 1.000 (3) 35.800 200.000 348. from above Noncontrolling Interest 100.000 20.000 (3)296. Chapter 07 .000 $ 547.126. 20X7 Cash Accounts Receivable Inventory Total Current Assets Buildings and Equipment Less: Accumulated Depreciation Total Assets $ 140. 20X7 Sales Other Income $ 693.Intercompany Inventory Transactions P7-34 (continued) d.000 78.300 $ 105.900 (6.000 $1.300 Randall Corporation and Subsidiary Consolidated Statement of Retained Earnings Year Ended December 31.300 68.000 267.500) $ 84.000 (658. 20X7 Income to Controlling Interest. 20X7 Retained Earnings.200 $ 400.800 404.000 4.000 (486.126.300 $1.000 348.400 $ 743.500 42.300 $ 548.300 Randall Corporation and Subsidiary Consolidated Income Statement Year Ended December 31.600) $ 78.300 140. Randall Corporation and Subsidiary Consolidated Balance Sheet December 31. 20X7 $ 320.800 $ 200.000 616.065.000) Accounts Payable Bonds Payable Bond Premium Stockholders’ Equity: Controlling Interest: Common Stock Retained Earnings Total Controlling Interest Noncontrolling Interest Total Stockholders’ Equity Total Liabilities and Stockholders' Equity 579. January 1.300 $1.300 7-66 .000 52.400 Cost of Goods Sold Depreciation and Amortization Expense Other Expenses Consolidated Net Income Income to Noncontrolling Interest Income to Controlling Interest $ 564.000 50.300 $ 398. Intercompany Inventory Transactions Dividends Declared. December 31.Chapter 07 .300 7-67 . 20X7 Retained Earnings. 20X7 (50.000) $ 348. 000) Dividends Paid Balance.000 ) 570.000 870.000 25.800.120.000 [6] 2.000 1.000) [7] 162.000 ) ) (181.000 (190.000 [a] 435.068. Plant and Equipment Accumulated Depreciation Investment in Brey 440. 3. Cr.000 (1.000 7-68 [3] 9.000 35. 12/31/X9 Balance Sheet: Assets: Cash Accounts Receivable (net) Inventories Land.000 [2] 156.) (3.000 [4] 35.000) [1] [b] 40.000 4. (Cr.Chapter 07 .000) (210.380.100.000 [3] 9.00 0 (551.000) (440.331.000 (587.000 (470. Equity Method [AICPA Adapted] Fran Corp.000 1.000 1.758.000 860.000) (991.000 [1] 181.000) (190.000 35.000 [a] 164.024. Dr.000 1.000) Net Income (551.000) (30.000 (470. 1/1/X9 (440.060.000) [1] [2] [4] 141.000) 2.000 4.000 204. (Cr.124.000 [5] 30.000 350.000 1.000) 720.547.000) [a] 164.000 [2] 60.000 750.000 (306.000 Adjusted Balance (5.000 [6] 2.000 [2] 54.000 .360.000 1.320.000 [a] 435. 20X9 Fran Corp Dr.000 150.000 410.000 [5] 30.000 (910.500.000 [8] [7] 86.000 [b] 591.Intercompany Inventory Transactions P7-35 Comprehensive Consolidation Workpaper.000) (156.000 (370.000 ) Retained Earnings Statement: Balance.452.000 2.000 ) 40. and Subsidiary Consolidation Workpaper December 31.000 Goodwill Total Assets [7] 180.000 1.000 ) Net Income Adjustments and Eliminations Dr.) Income Statement: Net Sales Equity in Brey's Income Gain on Sale of Warehouse Cost of Goods Sold Goodwill Impairment Loss Operating Expenses (including depreciation) Brey Inc.000 18.000 680.000 891. 273.700.000) [2] 80.848.700.000) (80.000 [2] 400.000) [b] 204.340.331.000) 1.000 ) ) 7-69 [8] 86.000 (4.000 (1.758.380.000 (910.000) .000) 1.000 (1.000) (4.000) (300.00 0) (306.000 ) (594.000 ) (1.000) (991.000 (1.Intercompany Inventory Transactions Liabilities and Stockholders' Equity: Accounts Payable and Accrued Expenses Common Stock Additional Paid-In Capital Retained Earnings Total Liabilities and Equity (1.000 ) (400.000 [b] 591.000 (300.Chapter 07 .273. [2] To eliminate reciprocal elements as of the beginning of the year from the investment and equity accounts and to assign the differential to machinery and goodwill.Chapter 07 . Fran's investment is carried at equity at December 31.000 Sold $144. adjusted for the amortization of the differential assigned to the machinery.000 / 6).000* On hand $36.$66.000)* $ 72. 20X9.000 * Cost of Goods Sold elimination: $162.000 (90. Brey's dividends.Intercompany Inventory Transactions P7-35 (continued) Explanations of Adjustments and Eliminations: [1] To eliminate Fran's investment income recognized from Brey. [4] To record goodwill impairment loss of $35.000 . [7] To eliminate intercompany sales from Brey to Fran and the inter-company profit in Fran's ending inventory as follows: Sales Gross profit Cost Total $180.000 (72. [5] To eliminate intercompany profit on the sale of the warehouse by Fran to Brey.000 [8] To eliminate Fran's intercompany balance to Brey for the merchandise it purchased. [3] To record amortization of the fair value in excess of book value of Brey's machinery at date of acquisition ($54.000) x 1/5 x ½].000 = $90.000.000 (18.000) $ 90. 7-70 . and the change in the investment account during 20X9.000) $18. [6] To eliminate the excess depreciation on the warehouse building sold by Fran to Brey [($86.000 + $72. 000 30.000 $ 310.000 20.000 400.778.200 100.000 20.000 $ 10.000 $1.000 30.000 15.000 215.778.800 100.300 $855.900 $1.000 .300 80.300 7-71 320.000 416.000 20.000 $855.000 25.000 170.000 250.000 24.000 $120.000 70.000 18.000 278.Intercompany Inventory Transactions P7-36A Fully Adjusted Equity Method a.000 300.000 500.Chapter 07 .000 110.000 4.000 50.400 27.000 200. Adjusted trial balance: Item Cash Accounts Receivable Inventory Buildings and Equipment Investment in Sharp Company Stock Cost of Goods Sold Depreciation and Amortization Other Expenses Dividends Declared Accumulated Depreciation Accounts Payable Bonds Payable Bond Premium Common Stock Additional Paid-In Capital Retained Earnings Sales Other Income Income from Subsidiary Randall Corporation Debit Credit Sharp Company Debit Credit $ 130.000 202.000 600.000 100. 80 4.Intercompany Inventory Transactions P7-36A (continued) b.500 .000 (3) Income from Subsidiary Investment in Sharp Company Stock Amortize differential: $4.000 3.000 x . Fully adjusted equity-method entries for 20X7: (1) Cash Investment in Sharp Company Stock Record dividends from Sharp Company: $25.000 6.000 / 8 years 2.000 x .000 4.000 (6) Income from Subsidiary Investment in Sharp Company Stock Remove unrealized profit on upstream sale of inventory: $10.000 8.000 2.Chapter 07 .000 = ($50.000 (4) Investment in Sharp Company Stock Income from Subsidiary Recognize deferred profit on upstream sale of inventory: $8.80 20.000 32.000 / 10 years) x .400 2. 3.000 (7) Income from Subsidiary Investment in Sharp Company Stock Remove unrealized profit on downstream sale of inventory.400 (5) Investment in Sharp Company Stock Income from Subsidiary Recognize deferred profit on downstream sale of inventory.80 8.000 x .80 6. 2.500 7-72 20.80 32.000 x .000 (2) Investment in Sharp Company Stock Income from Subsidiary Record equity-method income: $40.000 (8) Investment in Sharp Company Stock Income from Subsidiary Recognize portion of gain on sale of equipment: $20. 20 6.900 6.000 20.600 20.000 .000 215. Eliminating entries.000 / 10 years) x 4 years 50.000 E(4) E(5) Investment in Sharp Company Stock Noncontrolling Interest Cost of Goods Sold Eliminate beginning inventory profit of Sharp Company. E(2) Income to Noncontrolling Interest Dividends Declared Noncontrolling Interest Assign income to noncontrolling interest: $6.000 Buildings and Equipment Depreciation Expense Accumulated Depreciation Differential Assign differential: $20.000 74.Intercompany Inventory Transactions P7-36A (continued) c. 100.000 5.000 + $8.000 35.000 8. 20X7: E(1) Income from Subsidiary Dividends Declared Investment in Sharp Company Stock Eliminate income from subsidiary.000 = ($50.$5.000) x .000 20. December 31.600 E(3) Common Stock — Sharp Company Additional Paid-In Capital Retained Earnings.000 35.Chapter 07 .600 = ($40.000 .$10. January 1 Differential Investment in Sharp Company Stock Noncontrolling Interest Eliminate beginning investment balance.000 7.000 . 7-73 27.600 296.900 5.400 1.000 1. 12.000 10.000 / 20 years) Required decrease Accumulated depreciation adjustment: Required balance ($3.500 40. 25.Chapter 07 .000 10.000 3.000 $6.000 E(8) Sales Cost of Goods Sold Inventory Eliminate intercompany sale of inventory by Randall Corporation.000 9.000 E(9) Buildings and Equipment Investment in Sharp Company Stock Depreciation Expense Accumulated Depreciation Eliminate intercorporate sale of equipment. E(7) Sales Cost of Goods Sold Inventory Eliminate intercompany sale of inventory by Sharp Company.250 (3.000 / 8 years) Depreciation required ($75. 7-74 2.000 .500) $40.750 x 14 years) Balance recorded ($6.750) $2. 45.000 10.250 x 2 years) Required increase E(10) Accounts Payable Accounts Receivable Eliminate intercorporate receivable/payable.000 17.500 (12.000 2.500 Depreciation expense adjustment: Depreciation recorded ($50.000 35.500 $52.Intercompany Inventory Transactions P7-36A (continued) E(6) Investment in Sharp Company Stock Cost of Goods Sold Eliminate beginning inventory profit of Randall Corporation.000 2. & Amortization Other Expenses Debits Consolidated Net Income Income to Noncontrolling Interest Income.000 311.500 56.000 30. Randall Corporation and Sharp Company Consolidation Workpaper December 31.300 416.300 320.000 (25. from above 7-75 693.900 (6. 1 Income.000) Eliminations Debit Credit (7) 45.400 (1) 27.500 743. Jan. Earnings.000 (658.600) 78.000 78.000 (8) 12.000 Other Income Income from Subsidiary Credits Cost of Goods Sold 20.000 215.400 27.000 24.000 (2) 5.600 96.300 (50.300 398.300 Consolidated (1) 20.300 230.000) (3)215.000 (6) 2.000 40. Sharp Co.000 (9) 2. Dec.300 .000) (240.000 81.000 (5) 8. 20X7 Item Randall Corp.000 (470.000) 348.500 Dividends Declared 320.000 250.500) 84.000 20. Sales 500.000 (4) 5.Intercompany Inventory Transactions P7-36A (continued) d.000 18.000 Deprec.500 (2) 6. 31.Chapter 07 .900 548.000 255.500 40.000 202.500 56.000 50.000 (8) 9.900 78.300 (50. carry forward 348.000 (7) 35.000) Ret. Earnings. carry forward 280.300 398.400 564.000 96.500 Ret.500 42.000 30.000 78.000 52. 000 1.800 100.000 Eliminations Debit Credit (4) (9) (5) (6) (9) (3) 50.000 15.000 1.300 .000 4.000 110.300 490.000 Accounts Payable Bonds Payable Bond Premium Common Stock Additional Paid-In Capital Retained Earnings.000 81.000 Credits 200.000 1.000 348.000 (9) 40. Sharp Co.000 300. Cash Accounts Receivable Inventory 130.000 Consolidated 140.000 4.000 6.622.622.Intercompany Inventory Transactions P7-36A (continued) Item Randall Corp.500 35.900 (3)296.600 (3) 74. from above Noncontrolling Interest 100.000 (10) 10.000 120.000 400.000 579.000 10.000 348.200 100.000 (5) 311.300 590.000 (4) 20.000 (7) 10.000 Buildings and Equipment Investment in Sharp Company Stock 600.300 140.258.075.400 2.000 25.000 17.000 105.500 (2) 1.Chapter 07 .000 Differential Debits 278.000 170.000 70.000 Accum.000 1.200 400.500 1. Depreciation 310.600 579.000 (1) 7.000 (3) 20.300 230.000 1.000 267.800 200.000 (3)100.000 7-76 (10) 10.000 20.000 (4) 35.000 (8) 3.258.300 80.300 74.300 590. 600 = ($40.600 Buildings and Equipment Differential Assign differential at date of acquisition.000 20.000) $ 35. 20X7: E(1) Dividend Income Dividends Declared Eliminate dividend income from subsidiary.000 7.000) Retained earnings at acquisition Net increase Proportion of stock held by noncontrolling interest Increase assigned to noncontrolling interest E(5) 6.000 50. Journal entry recorded by Randall Corporation: Cash Dividend Income Record dividend from Sharp Company: $25.$5.80 b.000 20.000 1.000 (180.20 $ 7.Chapter 07 .000 = ($300.000 7-77 20.000 Common stock (100.600 280.000 5.$10.000 .000 x .000 .000 100.20 E(3) Common Stock — Sharp Company Additional Paid-In Capital Retained Earnings.000 .Intercompany Inventory Transactions P7-37A Cost Method a. 7. January 1 Noncontrolling Interest Assign undistributed prior earnings of subsidiary to noncontrolling interest.000 + $8.000) E(4) 20.$100. E(2) Income to Noncontrolling Interest Dividends Declared Noncontrolling Interest Assign income to noncontrolling interest: $6.000 70.000 .000 $215. Retained earnings.000 Retained Earnings.000 180. 20.000) x . January 1. 20X7 Net assets of Sharp at acquisition $300.000 x . December 31.$20.000 Eliminating entries.000 50.000 50.000 .000) Additional paid-in capital (20. January 1 Differential Investment in Sharp Company Stock Noncontrolling Interest Eliminate investment balance at date of acquisition: $180. 000 E(7) Depreciation Expense Accumulated Depreciation Amortize differential.000 / 8 years) Depreciation required ($75. 2.000 35.000 E(12) Buildings and Equipment Retained Earnings. 12. January 1 Noncontrolling Interest Accumulated Depreciation Amortize differential for prior periods: ($50.000 9.500) $40.Intercompany Inventory Transactions P7-37A (continued) E(6) Retained Earnings.500 (12.000 3.400 1.750 x 14 years) Balance recorded ($6.500 Depreciation expense adjustment: Depreciation recorded ($50.000 / 20 years) Required decrease $ 6.500 40. 6.000 8.000 5.600 E(9) Retained Earnings.000 E(8) Retained Earnings.Chapter 07 . January 1 Noncontrolling Interest Cost of Goods Sold Eliminate beginning inventory profit of Sharp Company.000 / 10 years) x 3 years 12. 5. 45.000 3.500 Accumulated depreciation adjustment: Required balance ($3.750) $ 2. January 1 Cost of Goods Sold Eliminate beginning inventory profit of Randall Corporation.000 E(11) Sales Cost of Goods Sold Inventory Eliminate intercompany sale of inventory by Randall Corporation.000 7-78 15. 25.250 (3.000 2.250 x 2 years) Required increase $52.000 10. January 1 Depreciation Expense Accumulated Depreciation Eliminate intercorporate sale of equipment.000 2.000 .000 17.000 E(10) Sales Cost of Goods Sold Inventory Eliminate intercompany sale of inventory by Sharp Company. 000 20. Sharp Co.400 400.000 (11) 9.600 56.000) 70.000 (12) 2.000 (658.400 416.000 Ret.Chapter 07 .000) 40.500 Consolidated 81. c.000 (9) 2.000 10.600 56. Earnings.000 693.000 52.000 Income.300 (50.000 (6) 12.500 743.Intercompany Inventory Transactions P7-37A (continued) E(13) Accounts Payable Accounts Receivable Eliminate intercorporate receivable/payable.000 (2) 5.000) 348.000 30.000 (4) 7.000 78.300 398. 10. Earnings.400 (9) 2.400 (1) 20.000 Other Income Dividend Income Credits Cost of Goods Sold 20.000) (240.400 40.000 Deprec.600) 78.400 20.600 88.000 255.500) 84.000 (10) 35.000) Ret. 20X7 Item Randall Corp.000 50.000 24.000 (470.900 (6.000 (12) 17. carry forward 350.900 215.300 .500 42.000 (8) 8.000 (11) 12.000 540. Jan.000 (25.000 (8) 6.000 18. 31. & Amortization Other Expenses Debits Consolidated Net Income Income to Noncontrolling Interest Income. carry forward 280.000 (7) 5. Dec. 1 329.400 564.000 30.000 202. Sales 500. from above Dividends Declared 70.500 (3)180.500 (2) 6.000 250.300 (50.300 320.000 7-79 Eliminations Debit Credit (10) 45.000 313.500 88.300 230.500 (1) 20.000 Randall Corporation and Sharp Company Consolidation Workpaper December 31. 000 (10) 10.000 (12) 40.200 100.000 573.000 1.000 Credits 200.300 230.000 70.000 15.500 3.000 110.300 74.000 (13) 10.000 (13) 10.100 140.622.200 400.000 (11) 3.000 10.000 267.500 (2) 1.300 140.000 170.000 Investment in Sharp Company Stock Differential Debits 280.000 (4) 7. from above Noncontrolling Interest 100.600 (3) 70.000 (7) 5.000 350.000 (5) 50.622.000 1.000 1.300 590.000 (3) 50.000 1.000 20.300 590.300 490.800 200.000 Buildings and Equipment 600.260.000 Eliminations Debit Credit (5) 50.000 (3)100.300 80.800 100.000 300.260.000 4.600 573.300 .000 Accum.000 348. Cash Accounts Receivable Inventory 130.000 400.000 (6) (8) Consolidated 81.000 105.000 (3)280.000 (6) 15.P7-37A (continued) Item Randall Corp.000 Accounts Payable Bonds Payable Bond Premium Common Stock Additional Paid-In Capital Retained Earnings. Sharp Co.000 313.000 4.000 120.000 (12) 25. Depreciation 310.000 (3) 20.075.100 1.000 1.