Question
My question from this problem is where did the $900 in unrealized profit come from ? Nothing from the given information states that there was
My question from this problem is where did the $900 in unrealized profit come from ? Nothing from the given information states that there was remaining intercompany merchandise in Peanut's inventory at the end of 2017. Can you please explain/show a calculation on how to find this.
Prepare a schedule showing Peanut's income from Sam for the years 2016, 2017, 2018 using the following information:
| Comparative income statements of Son Corp | |||
| 2016 | 2017 | 2018 | |
| Sales | 48,000,000 | 51,000,000 | 57,000,000 |
| COGS | 25,200,000 | 26,400,000 | 30,000,000 |
| Gross profit | 22,800,000 | 24,600,000 | 27,000,000 |
| Operating expenses | 18,000,000 | 19,200,000 | 22,800,000 |
| Net income | 4,800,000 | 5,400,000 | 4,200,000 |
- Sam was a 75% owned subsidiary of Peanut Corp throughout the 2016-2018 period. Peanuts separate income (excludes income from Sam) was $21,600,000, $20,400,000, and $24,000,000 in 2016, 2017, and 2018, respectively. Peanut acquired its interest in Sam at its underlying book value, which was equal to the fair value on July 1, 2015.
- Peanut Co. sold inventory to Sam Co. during 2016 at a gross profit to Pop of $2,400,000. Half the merchandise remained in Sons inventory at Dec 31, 2016. Total sales by Peanut to Sam in 2016 were $6,000,000. The remaining merchandise was sold by Sam in 2017.
- Peanuts inventory at December 31, 2017, included items acquired from Sam on which Sam made a profit of $1,200,000. Total sale by Sam to Peanut during 2017 were $4,800,000.
- There were no unrealized profits in the December 31, 2018, inventories of either company.
- Peanut uses the equity method for its investment in Sam
This is the answer from the solutions manual:
| 1 | Pop's income from Son | 2016 | 2017 | 2018 |
|
| 75% of Son's net income | $3,600 | $4,050 | $3,150 |
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| Unrealized profit in December 31, |
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| 2016 inventory (downstream) |
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| ($2,400 1/2) 100% | (1,200) | 1,200 |
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| Unrealized profit in December 31, |
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| 2017 inventory (upstream) |
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| $1,200 75% |
| (900) | 900 |
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| Pop's income from Son | $2,400 | $4,350 | $4,050 |
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Tracking Your Trek Looking Backward To Determine Your Forward
Authors: Erica Pauly
1st Edition
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