# AA 16 - current year. Inventory \$ Sales \$ Cost of Goods...

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Question: Following are several figures reported for Preston and Sanchez as of December 31, 2011: Preston Sanchez Inventory \$ 400,000 \$ 200,000 Sales 800,000 600,000 Investment income not given Cost of goods sold 400,000 300,000 Operating expenses 180,000 250,000 -------------------------------------------------------------------------------- Preston acquired 70 percent of Sanchez in January 2010. In allocating the newly acquired subsidiary’s fair value at the acquisition date, Preston noted that Sanchez having developed a customer list worth \$65,000 unrecorded on its accounting records and having a five-year remaining life. Any remaining excess fair value over Sanchez’s book value was attributed to goodwill. During 2011, Sanchez sells inventory costing \$120,000 to Preston for \$160,000. Of this amount, 20 percent remains unsold in Preston’s warehouse at year-end. For Preston’s consolidated reports, determine the following amounts to be reported for the
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Unformatted text preview: current year. Inventory \$ Sales \$ Cost of Goods Sold \$ Operating Expenses \$ Non controlling Interest in the Subsidiary’s Net Income Solution: Computation of the following Inventory = \$592,000 (400000+200000-8000) Sales = \$1,240,000 (800,000+400,000-160,000 (intra-entity transfer)) Cost of goods sold = \$548,000 (400,000+300,000-160000+8000) Operating expenses = \$443,000 (180,000+250,000+13000 (this figure calculated below) Non controlling interest in subsidiary's net income = \$8,700 (30 % of the income after less 13,000 more fair value amortization and deferring \$8,000 ending unrealized gross profit) Working notes: Customer list amortization = \$65,000 ÷ 5 years = \$13,000 per year Intra-entity gross profit (\$160,000 – \$120,000) \$40,000 Inventory remaining at year's end 20% Unrealized intra-entity gross profit, 12/31 \$8,000...
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## This note was uploaded on 12/05/2011 for the course ACC 134 taught by Professor Erik during the Fall '11 term at Colorado.

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