Reference no: EM132488354

Point 1: Placid Lake Corporation acquired 90 percent of the outstanding voting stock of Scenic, Inc., on January 1, 2017, when Scenic had a net book value of $430,000. Any excess fair value was assigned to intangible assets and amortized at a rate of $6,000 per year.

Point 2: Placid Lake's 2018 net income before consideration of its relationship with Scenic (and before adjustments for intra-entity sales) was $330,000. Scenic reported net income of $140,000. Placid Lake declared $130,000 in dividends during this period; Scenic paid $43,000. At the end of 2018, selected figures from the two companies' balance sheets were as follows:

                               Placid Lake        Scenic

Inventory             $170,000          $93,000

Land                   630,000             230,000

Equipment (net)      430,000          330,000

Point 3: During 2017, intra-entity sales of $90,000 (original cost of $48,000) were made. Only 30 percent of this inventory was still held within the consolidated entity at the end of 2017. In 2018, $120,000 in intra-entity sales were made with an original cost of $62,000. Of this merchandise, 40 percent had not been resold to outside parties by the end of the year.

Point 4: Each of the following questions should be considered as an independent situation for the year 2018.

Question 1: If the intra-entity sales were upstream, how would consolidated net income be allocated to the controlling and noncontrolling interest?

Question 2: If the intra-entity sales were downstream, how would consolidated net income be allocated to the controlling and noncontrolling interest?