Eliminating intercompany transactions. (Requires Appendix 11.1; adapted from a problem by S. A. Zeff.) Alpha owns 100 percent of Omega and consolidates Omega in an entity called Alpha/Omega. Beginning in Year 2, Alpha sold merchandise to Omega at a price 50 percent larger than Alpha's costs. Omega sold some, but not all, of these goods to customers at a further markup. Excerpts from the single-company statements of Alpha and Omega and from the consolidated financial statements of Alpha/Omega appear on page 650 .

a. What was the total sales price at which Alpha sold goods to Omega during Year 2?

b. What was Omega's cost of the goods it had purchased from Alpha but has not yet sold by the end of Year 2? What was Alpha's cost of those goods? Which of those two numbers appears in the total Merchandise Inventory on the consolidated balance sheet?

Transcribed Image Text:

DEALCO CORPORATION EXHIBIT 11.12 Consolidated Income Statement (Exercise 32) REVENUES Sales Equity in Earnings of Unconsolidated Affiliate Total Revenues EXPENSES Cost of Goods Sold (excluding depreciation) Administrative Expense Depreciation Expense Amortization of Goodwill Income Tax Expenses: Currently Payable Deferred Total Expenses Income of the Consolidated Group Less Minority Interest in Earnings of Consolidated Subsidiary Net Income to Shareholders $1,400,000 56,000 $1,456,000 $ 910,000 140,000 161,000 7,000 $ 58,800 14,000 72,800 $1,290,800 $ 165,200 (42,000) $ 123,200