Practice 5- Ch 5 and Ch 6 Inter-entity transactions

Practice 5- Ch 5 and Ch 6 Inter-entity transactions - Ch 5...

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1 Ch 5 and Ch 6 Inter-entity transactions Four Practice Problems: 5-20, 5-25, 5-34 and Ch 6 Excel case. Solutions: a. Consolidated Cost of Goods Sold Problem 1: 5-20 (30 Minutes) (Compute selected balances based on three different intra-entity asset transfer scenarios) Penguin’s cost of goods sold . ..................................................... $290,000 Snow’s cost of goods sold . ......................................................... 197,000 Elimination of 2011 intra-entity transfers . .................................... (110,000) Reduction of beginning Inventory because of 2010 unrealized gross profit ($28,000 ÷ 1.4 = $20,000 cost; $28,000 transfer price less $20,000 cost = $8,000 unrealized gross profit) . ................................... (8,000) Reduction of ending inventory because of 2011 unrealized gross profit ($42,000 ÷ 1.4 = $30,000 cost; $42,000 transfer price less $30,000 cost = $12,000 unrealized gross profit) . ................................. Consolidated cost of goods sold . ..................................... $381,000 12,000 Consolidated Inventory Penguin book value . .............................................................. $346,000 Snow book value . .................................................................. 110,000 Defer ending unrealized gross profit (see above) . ................. (12,000 Consolidated Inventory . ......................................................... $444,000 )
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2 Noncontrolling Interest in Subsidiary’s Net Income Because all intra-entity sales were downstream, the deferrals do not affect Snow. Thus, the noncontrolling interest is 20% of the $58,000 (revenues minus cost of goods sold and expenses) reported income or $11,600. b. Consolidated Cost of Goods Sold Penguin book value . ................................................................... $290,000 Snow book value . ........................................................................ 197,000 Elimination of 2011 intra-entity transfers . .................................... (80,000) Reduction of beginning inventory because of 2010 unrealized gross profit ($21,000 ÷ 1.4 = $15,000 cost; $21,000 transfer price less $15,000 cost = $6,000 unrealized gross profit) . ................................... (6,000) Reduction of ending inventory because of 2011 unrealized gross profit ($35,000 ÷ 1.4 = $25,000 cost; $35,000 transfer price less $25,000 cost = $10,000 unrealized gross profit) . ................................. Consolidated cost of goods sold . ................................................ $411,000 10,000
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3 20. b. (continued) Consolidated Inventory Penguin book value . ......................................................................................... $346,000 Snow book value . ............................................................................................. 110,000 Defer ending unrealized gross profit (see above) . ............................................ (10,000 Consolidated inventory . ............................................................................. $446,000
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Practice 5- Ch 5 and Ch 6 Inter-entity transactions - Ch 5...

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