Upstream Sales Shell Company, an 85% owned subsidiary of Plaster Company, sells merchandise to Plaster Company at a markup of 20% of selling price. During 2004 and 2005, intercompany sales amounted to $442,500 and $386,250, respectively. At the end of 2004, Plaster had one-half of the goods that it purchased that year from Shell in its ending inventory. Plaster’s 2005 ending inventory contained one-fifth of that year’s purchases from Shell. There were no intercompany sales prior to 2004.
Plaster had net income in 2004 of $750,000 from its own operations and in 2005 its independent income was $780,000. Shell reported net income of $322,500 and $335,400 for 2004 and 2005, respectively. LO5 Required:
A. Prepare in general journal form all entries necessary on the consolidated financial statement workpapers to eliminate the effects of the intercompany sales for each of the years 2004 and 2005.
B. Calculate the amount of noncontrolling interest to be deducted from combined income in the consolidated income statement for 2005.
C. Calculate consolidated net income (controlling interest in combined income) for 2005.