Question
Prance Athleticwear Company owns all of the voting stock of Stallion Shoes. Acquisition cost was $7 million in excess of Stallion's book value of $3
Prance Athleticwear Company owns all of the voting stock of Stallion Shoes. Acquisition cost was $7 million in excess of Stallion's book value of $3 million, and the excess was attributed entirely to goodwill. As of the beginning of the current year, goodwill is impaired by $500,000. Goodwill is not impaired in the current year. Following is information on intercompany merchandise transactions between Prance and Stallion for the current year:
Intercompany profit in Prance's beginning inventory, purchased from Stallion, is $300,000.
Intercompany profit in Stallion's beginning inventory, purchased from Prance, is $400,000.
Intercompany profit in Prance's ending inventory, purchased from Stallion, is $200,000.
Intercompany profit in Stallion's ending inventory, purchased from Prance, is $250,000.
Total sales from Stallion to Prance, at the price charged to Prance, were $7 million.
Total sales from Prance to Stallion, at the price charged to Stallion, were $5 million.
Prance uses the complete equity method to account for its investment in Stallion on its own books. The separate trial balances for Prance and Stallion at the end of the current year are below.
(in thousands) | Prance Dr (Cr) | Stallion Dr (Cr) |
---|---|---|
Current assets | $2,500 | $1,500 |
Plant and equipment, net | 350,000 | 250,000 |
Investment in Stallion | 12,050 | -- |
Liabilities | (353,300) | (245,500) |
Capital stock | (2,000) | (1,000) |
Retained earnings, beginning | (6,000) | (4,000) |
Sales revenue | (275,000) | (150,000) |
Equity in net income | (1,250) | -- |
Cost of sales | 200,000 | 90,000 |
Operating expenses | 73,000 | 59,000 |
Total | $0 | $0 |
Required
a. a schedule calculating equity in net income for the current year, appearing on Prance's separate books ($1,250,000) and the end-of-year balance for Investment in Stallion, appearing on Prance's separate books ($12,050,000).
Enter answers in thousands ($400,000 equals $400 in thousands).
Use negative signs with answers that reduce net income and the investment balance.
(in thousands) | ||
---|---|---|
Stallion's reported income | Answer | |
Confirmed profit in beginning inventory | Answer | |
Unconfirmed profit in ending inventory | Answer | |
Equity in net income | $1,250 |
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