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Pam Co. owns 90% of the voting stock of Sam Co. and the two firms present consolidated financial statements. Pam Co. uses the equity
Pam Co. owns 90% of the voting stock of Sam Co. and the two firms present consolidated financial statements. Pam Co. uses the equity method to account for its investment in Sam Co. Below is information about some intra-entity transactions that occurred during 20x3 or may have some effect on 20x3. Pam and Sam are both U.S. firms. Transaction A. Sam Co. often sells inventory to Pam Co for cash. In 20x3, Pam Co.'s beginning inventory included SSM of units that it had purchased from Sam (the balance included profits of $2M) and Pam Co.'s ending inventory has $4M of units that had been purchased from Sam Co. (includes $1M of profits). Pam Co. also purchased $28M of merchandise inventory from Sam Co. in 20x3 (includes $7 million in profits). Transaction B. Pam Co. sold equipment to Sam Co. for cash on Jan. 1, 20x3. The equipment originally cost Pam Co. $8M and it had $2M of accumulated depreciation at the time Pam sold it to Sam for $10 million. Sam is depreciating the equipment over 10 years (everyone uses straight-line depreciation with no salvage value). Sam still owns the equipment by the end of the year. Transaction C: Pam Co sold Sam Co. land for $5M in cash on Jan 1, 20x1. The land originally had a book value of SIM. During 20x3, Sam Co. sold the land to an outside developer for $4 million. 1. (7 pts) Show any "I" consolidating entry or entries needed in the 20x3 consolidation worksheet related to intra-entity Transaction A, above.
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