Consolidation Worksheet: Upstream Multiple- Year Transfers — 80% Ownership Comparative fi¬

nancial statements of Pebb Inc. and its 80%-owned subsidiary, Sebb Inc. (created five years ago), are as follows:

Pebb Inc. Sebb Inc.

Income Statement (2006)

Sales Cost Expenses of

.

sales

.

.

Intercompany Accounts Equity in net income (of Sebb) .

Intercompany Intercompany sales cost of

.

sales .

Net income .

Statement of Retained Earnings (2006)

+

Balances, Net income 1/1/06

.

.

- Dividends declared .

Balances, 12/31/06 .

Balance Sheet (12/31/06)

Inventory Intercompany from

.

vendors .

Investment Other assets in

.

subsidiary .

Total Assets .

Common Liabilities Retained Total stock earnings Liabilities

.

.

.

and Equity .

$ 600,000 (350,000) $ (50,000) 85,000

(150,000) (40,000)

20,000 90,000

(60,000)

$ 120,000 $ 25,000

$ 150,000 $ 55,000 120,000 25,000

(50,000) (10,000)

$ 220,000 $ 70,000

$ 150,000 15,000 $ 50,000 140,000 363,000 180,000

$ 668,000 $230,000

$ 298,000 $ 55,000 150,000 105,000 220,000 70,000

$ 668,000 $230,000 Additional Information 1. At 12/31/05 (the preceding year-end), Pebb had on hand inventory it had acquired in 2005 from Sebb at a cost of $25,000. Sebb’s cost was $10,000. Pebb resold all of this inventory in 2006 for $44,000.

2. No general ledger entries were made at the end of 2005 or 2006 to defer unrealized intercom¬

pany profit.

Required 1. Determine the unrealized profit at year-end by preparing an analysis. {For Module 2 only: Also make the necessary (1) hegimtmg-ol-year correcting entry and (2) e«d-of-year general ledger ad¬

justing entry to reflect the deferral of profit on Sebb’s books. Adjust both sets of statements ac¬ cordingly.)

2. Prepare all consolidation entries as of 12/31/06.
3. Prepare a consolidation worksheet at 12/31/06.