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Chapter 7 Problems

# Chapter 7 Problems - Chapter 7 Problems Problem 2...

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Chapter 7 Problems Problem 2 Intercompany revenues and expenses Sales and purchases (100,000 + 80,000) 180,000 (a) Rent revenue and expense 24,000 (b) Interest revenue and expense (70% x 50,000) 35,000 (c) Intercompany inventory profits Before 40% After tax tax tax Opening inventory – Sub selling 5,000 2,000 3,000 (d) Closing inventory – Parent selling (100,000 x .50 x .30) 15,000 6,000 9,000 (e) Calculation of noncontrolling interest: Income of subsidiary (9,000 / 10%) 90,000 Add: opening inventory profit (d) 3,000 Adjusted 93,000 10% 9,300 Parent Company Consolidated Income Statement for the Current Year Sales (500,000 – (a) 180,000) 320,000 Interest revenue (50,000 – (c) 35,000) 15,000 Total revenue 335,000 Cost of goods sold (350,000 – (a) 180,000 – (d) 5,000 + (e) 15,000) 180,000 Miscellaneous administration expense 45,000 Income tax expense (42,000 + (d) 2,000 – (e) 6,000) 38,000 Total expense 263,000 Net income – entity 72,000 Less: noncontrolling interest 9,300

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Net income 62,700 Proof: Net income previously reported 69,000 Add: opening inventory profit (3,000 x 90%) 2,700 71,700 Less: closing inventory profit 9,000 Consolidated net income 62,700 Problem 3 Land Gain on sale Income tax *** December 31, Year 1 Pike Spike Consolidated 100,000 115,000 * December 31, Year 2 Pike Spike Consolidated 125,000 115,000 * 25,000 10,000 December 31, Year 3 Pike Spike Consolidated 5,000 30,000 ** 2,000 12,000 * = fair value of land at date of acquisition
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Chapter 7 Problems - Chapter 7 Problems Problem 2...

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