HW 5 with solution - Ch 5 and Ch 6 Inter-entity transaction

HW 5 with solution - Ch 5 and Ch 6 Inter-entity transaction...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
1 Homework 5 Ch 5 and Ch 6 Three Problems: 5-18, 5-31 and 6-25. Solutions: Problem 1: 5-18 (40 Minutes) (Series of independent questions concerning various aspects of the consolidation process when intra-entity transfers have occurred) a. 2010 Unrealized gross profit to be recognized in 2011: Intra-entity gross profit on transfers ($90,000 – $54,000) . .......... $36,000 Inventory retained at end of 2010 20% Unrealized gross profit—12/31/10 . ........................................ $ 7,200 2011 Unrealized gross profit deferred: Intra-entity gross profit on transfers ($120,000 – $66,000) . ........ $54,000 Inventory retained at end of 2011 . 30% Unrealized gross profit—12/31/11 . ......................................... $16,200 Noncontrolling interest's share of Kane's income Kane's reported income 2011 . ..................................................... $110,000 Amortization of excess fair value to intangibles . .......................... (5,000) 2010 gross profit realized in 2011 (upstream sales) . .................. 7,200 2011 gross profit deferred (upstream sales) . .............................. (16,200 ) Kane's realized income . .............................................................. $96,000 Noncontrolling interest ownership 20% Noncontrolling interest's share of Kane's income. ........................ $19,200 b. Inventory—Smith book value . ..................................................... $140,000 Inventory—Kane book value . ...................................................... 90,000 Unrealized gross profit, 12/31/11 (see part a) . ............................ (16,200 ) Consolidated inventory ............................................................... $213,800 (Direction of transfer has no impact here) c. Downstream transfers do not affect the noncontrolling interest. Kane's 2011 reported income less excess amortization ............ $105,000 Noncontrolling interest ownership 20% Noncontrolling interest's share of Kane's income ......................... $ 21,000 d. Smith's reported income 2011 . .................................................... $300,000 Elimination of intra-entity dividend income recorded by parent ($40,000 × 80%) . ................................................... (32,000) Kane's reported income 2011 . .................................................... 110,000 Amortization expense (given) .................................................... (5,000) Realization of 2010 intra-entity gross profit (see part a) ............. 7,200 Deferral of 2011 intra-entity gross profit (see part a) . .................. (16,200 ) Consolidated net income ............................................................. $364,000
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
2 e. Because the parent applies the partial equity method, its retained earnings balance does not reflect the consolidated balance. Excess amortization and the effect of the unrealized gain at that date must be taken into account to arrive at a consolidated total. Smith's retained earnings, December 31, 2011 (given)
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 7

HW 5 with solution - Ch 5 and Ch 6 Inter-entity transaction...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online