Reference no: EM13853062

Question 1:

Upstream and Downstream Sales

Pace Company owns 85% of the outstanding common stock of Sand Company and all the outstanding common stock of Star Company. During 2012, the affiliates engaged in intercompany sales as follows:

Sales of Merchandise
Pace to Sand $ 40,000
Sand to Pace 60,000
Sand to Star 75,000
Star to Pace 50,000

$225,000

The following amounts of intercompany profits were included in the December 31, 2011, and December 31, 2012, inventories of the individual companies:

Intercompany Profit in
December 31, 2011, Inventory of
Selling Company Pace Sand Star Total
Pace Company $7,000 $ 7,000
Sand Company $ 5,000 $3,000 8,000
Star Company 8,000 8,000
Total $13,000 $7,000 $3,000 $23,000

Intercompany Profit in
December 31, 2012, Inventory of
Selling Company Pace Sand Star Total
Pace Company $2,000 $ 2,000
Sand Company $ 6,000 $9,000 15,000
Star Company 4,000 4,000
Total $10,000 $2,000 $9,000 $21,000
Income from each company's independent operations (including sales to affiliates) for the year ended December 31, 2012, is presented here:
Pace Company $200,000
Sand Company 150,000
Star Company 125,000

Required:

A. Prepare in general journal form the workpaper entries necessary to eliminate intercompany sales and intercompany profit in the December 31, 2012, consolidated financial statements workpaper.

B. Calculate the balance to be reported in the consolidated income statement for the following line items:

Question 2:

Consolidated income

Noncontrolling interest in consolidated income

Controlling interest in consolidated income

Workpaper Journal Entries and Income Statement Balances

Powell Company owns 80% of the outstanding common stock of Sullivan Company. On June 30, 2011, Sullivan Company sold equipment to Powell Company for $500,000. The equipment cost Sullivan Company $780,000 and had accumulated depreciation of $400,000 on the date of the sale. The management of Powell Company estimated that the equipment had a remaining useful life of four years from June 30, 2011. In 2012, Powell Company reported $300,000 and Sullivan Company reported $200,000 in net income from their independent operations (including sales to affiliates but excluding dividend or equity income from subsidiary).

Required:

A. Prepare in general journal form the workpaper entries necessary because of the intercompany sale of equipment in:

(1) The consolidated financial statements workpaper for the year ended December 31, 2011.

(2) The consolidated financial statements workpaper for the year ended December 31, 2012.

B. Calculate the balances to be reported in the consolidated income statement for the year ended December 31, 2012, for the following items:

(1) Consolidated income. $96,000.00

(2) Noncontrolling interest in consolidated income. $24,000.00

(3) Controlling interest in consolidated income. $280,000.00

Question 3:

Multiple Stock Purchases

Sarko Company had 300,000 shares of $10 par value common stock outstanding at all times, and retained earnings balances as indicated here: Retained Earnings

Pelzer Company acquired Sarko Company stock through open-market purchases as follows:

Date % Acquired Shares Cost

Sarko Company declared no dividends during this period. The fair values of Sarko Company's assets and liabilities were approximately equal to their book values throughout this period (2010 through 2012). Pelzer Company uses the cost method.

Required:

A. Prepare a schedule to compare investment cost with the book value of equity acquired.

B. Prepare elimination entries for the preparation of a consolidated statements workpaper on December 31, 2012.