Controlling Interest, Downstream Sales On January 1, 2004, Pearce Company purchased an 80% interest in the capital

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Controlling Interest, Downstream Sales On January 1, 2004, Pearce Company purchased an 80% interest in the capital stock of Searl Company for $2,460,000. At that time, Searl Company had capital stock of $1,500,000 and retained earnings of $300,000. The difference between cost and the book value of the 80%
interest acquired was attributed to specific assets of Searl Company as follows: LO5 $300,000 to equipment of Searl Company with a five-year remaining life.
150,000 to land held by Searl Company.

90,000 to inventory of Searl Company. Searl uses the FIFO assumption in pricing its inventory.
480,000 that could not be assigned to specific assets or liabilities of Searl nai, be Company (amortized over 40 years).
$1,020,000 Total At year-end 2004 and 2005, Searl had in its inventory merchandise that it had purchased from Pearce at a 25% markup on cost during each year in the following amounts:
2004 $ 90,000 2005 $105,000 During 2004, Pearce reported net income from independent operations (including sales to affiliates) of $1,500,000, while Searle reported net income of $600,000. In 2005, Pearce’s net income from independent operations (including sales to affiliates) was $1,800,000 and Searl’s was $750,000.
Required:
Calculate the controlling interest in combined net income for 2004 and 2005.

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Advanced Accounting

ISBN: 9780471218524

2nd Edition

Authors: Debra C. Jeter, Paul Chaney

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