Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Problem 3: Assume that a parent company acquired 80% of a subsidiary on January 1, 2014. The purchase price was $175,000 in excess of the

image text in transcribed
Problem 3: Assume that a parent company acquired 80% of a subsidiary on January 1, 2014. The purchase price was $175,000 in excess of the subsidiary's book value of Stockholders' Equity on the acquisition date, and that excess was assigned entirely to an unrecorded Patent owned by the subsidiary. The assumed economic useful life of the patent is 10 years. Assume that subsidiary sells inventory to the parent. The parent, ultimately, sells the Inventory to customers outside of the consolidated group. You have complied the following data for the years ending 2015 and 2016 related with intra-entity inventory sales Inventory Sales Gross Profit Remaining in Unsold Inventory 2016 $ 103,300 $29,441 2015 $ 87,900 $19,137 The inventory not remaining at the end of the year has been sold to unaffiliated entities outside of the consolidated group. The unsold part will be sold to unaffiliated entities in the following year. The parent company applies equity method for this investment. Subsidiary reports $216,930 as net income on its income statement for the year of 2016. 1. Show the computation to yield the pre-consolidation balance for Equity income in subsidiary (appeared under parent company's income statement) during 2016 (4 pts) 2. If the intra-entity sales changes from upstream to downstream, then how would the balance change for Equity income in subsidiary during 2016. (4 pts) 3. Show the consolidation adjustment entries related to intra-entity inventory sales. (6 pts)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Challenge Of Management Accounting Change

Authors: John Burns, Mahmoud Ezzamel, Robert Scapens

1st Edition

075066004X, 978-0750660044

More Books

Students also viewed these Accounting questions