Question 1

On January 1, 2021, Musical Corp. sold equipment to Martin Inc. (a wholly-owned subsidiary)for $168,000 in cash. The equipment originally cost $140,000 but had a book value of only $98,000 when transferred. On that date, the equipment had a five-year remaining life. Depreciation expense was calculated using the straight-line method.Musical earned $308,000 in net income in 2021 (not including any investment income)while Martin reported $126,000. Assume there is no amortization related to the original investment.Prepare a schedule of consolidated net income and the share to controlling and noncontrolling interests for 2021, assuming that Musical owned only 90% of Martin and the equipment transfer had been downstream.

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Question 2

How is the gain on an intra-entity transfer of a depreciable asset recognized?

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Question 3

Virginia Corp. owned all of the voting common stock of Stateside Co. Both companies use the perpetual inventory method, and Virginia decided to use the partial equity method to account for this investment. During 2020, Virginia made cash sales of $400,000 to Stateside. The gross profit rate was 30% of the selling price. By the end of 2020, Stateside had sold 75% of the goods to outside parties for $420,000 cash.Prepare any 2021 consolidation worksheet entries that would be required regarding the 2020 inventory transfer.

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Question 4

Virginia Corp. owned all of the voting common stock of Stateside Co. Both companies use the perpetual inventory method, and Virginia decided to use the partial equity method to account for this investment. During 2020, Virginia made cash sales of $400,000 to Stateside. The gross profit rate was 30% of the selling price. By the end of 2020, Stateside had sold 75% of the goods to outside parties for $420,000 cash.Prepare journal entries for Virginia and Stateside to record the sales/purchases during 2020.

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Question 5

Virginia Corp. owned all of the voting common stock of Stateside Co. Both companies use the perpetual inventory method, and Virginia decided to use the partial equity method to account for this investment. During 2020, Virginia made cash sales of $400,000 to Stateside. The gross profit rate was 30% of the selling price. By the end of 2020, Stateside had sold 75% of the goods to outside parties for $420,000 cash.Prepare the consolidation entries that should be made at the end of 2020.

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Question 6

Throughout 2021, Flenderson Co. sold inventory to Bertram Co., its subsidiary. From a consolidated financial statement point of view, when will the gross profit on this transfer be recognized?

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Question 7

Hambly Corp. owned 80% of the voting common stock of Stroban Co. During 2021, Stroban sold a parcel of land to Hambly. The land had a book value of $82,000 and was sold to Hambly for $145,000. Stroban's reported net income for 2021 was $119,000.Required:Assuming there are no other intra-entity transactions nor excess amortizations, what was the net income attributable to the noncontrolling interest of Stroban?

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Question 8

McGraw Corp. owned all of the voting common stock of both Ritter Co. and Lawler Co. During 2021, Ritter sold inventory to Lawler. The goods had cost Ritter $65,000, and they were sold to Lawler for $100,000. At the end of 2021, Lawler still held 30% of the inventory.Required:How should the sale between Lawler and Ritter be accounted for in a 2021 consolidation worksheet? Show worksheet entries to support your answer.

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Question 9

Several years ago, Polar Inc. acquired an 80% interest in Icecap Co. The book values of Icecap's asset and liability accounts at that time were considered to be equal to their fair values. Polar's acquisition value corresponded to the underlying book value of Icecap so that no allocations or goodwill resulted from the transfer.The following selected account balances were from the individual financial records of these two companies as of December 31, 2021:
  Assume that Polar sold inventory to Icecap at a markup equal to 25% of cost. Intra-entity transfers were $130,000 in 2020 and $165,000 in 2021. Of this inventory, $39,000 of the 2020 transfers were retained and then sold by Icecap in 2021, while $55,000 of the 2021 transfers were held until 2022.Required:For the consolidated financial statements for 2021, determine the balances that would appear for the following accounts: (i)Cost of Goods Sold; (ii)Inventory; and (iii)Net income attributable to the noncontrolling interest.

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Question 10

Vickers Inc. acquired all of the common stock of Scott Corp. on January 1, 2021. During 2021, Scott sold land to Vickers at a gain. No consolidation entry for the sale of the land was made at the end of 2021. What errors will this omission cause in the consolidated financial statements?

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Question 11

During 2021, Miner Co. sold inventory to its parent company, Bennett Corp. Bennett still owned the entire amount of inventory purchased at the end of 2021. Why must the gross profit on the sale be deferred when consolidated financial statements are prepared at the end of 2021?

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Question 12

How does a gain on an intra-entity transfer of equipment affect the calculation of a noncontrolling interest?

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Question 13

How do upstream and downstream inventory transfers differ in their effect in a year-end consolidation?

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Question 14

Lewis Corp. acquired all of the voting common stock of Vance Co. on January 1, 2021. Lewis owned land with a book value of $84,000 that was sold to Vance for its fair value of $120,000. How should this transfer be accounted for by the consolidated entity?

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Question 15

On April 7, 2021, Martinez Corp. sold land to Hannon Co., its subsidiary. From a consolidated financial statement point of view, when will the gain on this transfer actually be recognized?

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Question 16

Strayten Corp. is a wholly owned subsidiary of Quint Inc. Quint decided to use the initial value method to account for this investment. During 2021, Strayten sold Quint goods, which had cost $48,000. The selling price was $64,000. Quint still had one-eighth of the goods purchased from Strayten on hand at the end of 2021.Required:Prepare Consolidation Entry *G, which would have to be recorded at the end of 2022.

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Question 17

On January 1, 2021, Musical Corp. sold equipment to Martin Inc. (a wholly-owned subsidiary)for $168,000 in cash. The equipment originally cost $140,000 but had a book value of only $98,000 when transferred. On that date, the equipment had a five-year remaining life. Depreciation expense was calculated using the straight-line method.Musical earned $308,000 in net income in 2021 (not including any investment income)while Martin reported $126,000. Assume there is no amortization related to the original investment.What is consolidated net income for 2021?

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Question 18

On January 1, 2021, Musical Corp. sold equipment to Martin Inc. (a wholly-owned subsidiary)for $168,000 in cash. The equipment originally cost $140,000 but had a book value of only $98,000 when transferred. On that date, the equipment had a five-year remaining life. Depreciation expense was calculated using the straight-line method.Musical earned $308,000 in net income in 2021 (not including any investment income)while Martin reported $126,000. Assume there is no amortization related to the original investment.Prepare a schedule of consolidated net income and the share to controlling and noncontrolling interests for 2021, assuming that Musical owned only 90% of Martin and the equipment transfer had been upstream

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The answer of On January 1, 2021, Musical Corp. sold...

Question 19

Several years ago, Polar Inc. acquired an 80% interest in Icecap Co. The book values of Icecap's asset and liability accounts at that time were considered to be equal to their fair values. Polar's acquisition value corresponded to the underlying book value of Icecap so that no allocations or goodwill resulted from the transfer.The following selected account balances were from the individual financial records of these two companies as of December 31, 2021:
  Polar sold a building to Icecap on January 1, 2020 for $112,000, although the book value of this asset was only $70,000 on that date. The building had a five-year remaining useful life and was to be depreciated using the straight-line method with no salvage value.Required:For the consolidated financial statements for 2021, determine the balances that would appear for the following accounts: (i)Buildings (net); (ii)Operating expenses; and (iii)Net income attributable to the noncontrolling interest.

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Question 20

Several years ago, Polar Inc. acquired an 80% interest in Icecap Co. The book values of Icecap's asset and liability accounts at that time were considered to be equal to their fair values. Polar's acquisition value corresponded to the underlying book value of Icecap so that no allocations or goodwill resulted from the transfer.The following selected account balances were from the individual financial records of these two companies as of December 31, 2021:
  Assume that Icecap sold inventory to Polar at a markup equal to 25% of cost. Intra-entity transfers were $70,000 in 2020 and $112,000 in 2021. Of this inventory, $29,000 of the 2020 transfers were retained and then sold by Polar in 2021, whereas $49,000 of the 2021 transfers were held until 2022.Required:For the consolidated financial statements for 2021, determine the balances that would appear for the following accounts: (i)Cost of Goods Sold; (ii)Inventory; and (iii)Net income attributable to the noncontrolling interest.

Accepted Answer

The answer of Several years ago, Polar Inc. acquired an...

Quiz 5: Consolidated Financial Statements Intra-Entity Asset Transactions

How is the gain on an intra-entity transfer of a depreciable asset recognized?

Throughout 2021, Flenderson Co. sold inventory to Bertram Co., its subsidiary. From a consolidated financial statement point of view, when will the gross profit on this transfer be recognized?

Vickers Inc. acquired all of the common stock of Scott Corp. on January 1, 2021. During 2021, Scott sold land to Vickers at a gain. No consolidation entry for the sale of the land was made at the end of 2021. What errors will this omission cause in the consolidated financial statements?

During 2021, Miner Co. sold inventory to its parent company, Bennett Corp. Bennett still owned the entire amount of inventory purchased at the end of 2021. Why must the gross profit on the sale be deferred when consolidated financial statements are prepared at the end of 2021?

How does a gain on an intra-entity transfer of equipment affect the calculation of a noncontrolling interest?

How do upstream and downstream inventory transfers differ in their effect in a year-end consolidation?

Lewis Corp. acquired all of the voting common stock of Vance Co. on January 1, 2021. Lewis owned land with a book value of $84,000 that was sold to Vance for its fair value of $120,000. How should this transfer be accounted for by the consolidated entity?

On April 7, 2021, Martinez Corp. sold land to Hannon Co., its subsidiary. From a consolidated financial statement point of view, when will the gain on this transfer actually be recognized?