Consolidation Entries: Intercompany Patent License Fee Pota Inc. owns 100% of Sota Inc.s com mon stock. In

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Consolidation Entries: Intercompany Patent License Fee Pota Inc. owns 100% of Sota Inc.’s com¬

mon stock. In 2006 Pota licensed to Sota the right to use a manufacturing patent developed by Pota, the costs of which were expensed as research and development on Pota’s books. For each inventory item that Sota manufactures, Sota pays a $10 royalty fee to Pota. During 2006, Sota manufactured 12,000 units (reporting this number to Pota) using the patented process, of which 10,000 units had been sold by the end of 2006. On Sota’s books, the royalty fee is prop¬

erly reportable as an inventoriable cost. In 2006, Sota made cash royalty payments of $77,000 to Pota.

1. How much of the royalty fee charges remain in Sota’s inventory at 12/31/06?

2. What amounts would be reported in each company’s separate 2006 income statement and 12/31/06 balance sheet (asset and liability sections only)? Use the following format:

Consolidation Entries Account Pota Inc. Sota Inc. Dr. Cr. Consolidated accounts.

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