PROBLEM 6-4 Upstream and Downstream Sales

Pace Company owns 85% of the outstanding common stock of Sand Company and all the

outstanding common stock of Star Company. During 2012, the affiliates engaged in intercompany

sales as follows:

Sales of Merchandise

Pace to Sand $ 40,000

Sand to Pace 60,000

Sand to Star 75,000

Star to Pace 50,000

Total $225,000

The following amounts of intercompany profits were included in the December 31,

2011, and December 31, 2012, inventories of the individual companies:

Intercompany Profit in

December 31, 2011, Inventory of

Selling Company Pace Sand Star Total

Pace Company $7,000 $ 7,000

Sand Company $ 5,000 $3,000 8,000

Star Company 8,000 8,000

Total $13,000 $7,000 $3,000 $23,000

Intercompany Profit in

December 31, 2012, Inventory of

Selling Company Pace Sand Star Total

Pace Company $2,000 $ 2,000

Sand Company $ 6,000 $9,000 15,000

Star Company 4,000 4,000

Total $10,000 $2,000 $9,000 $21,000

Income from each company's independent operations (including sales to affiliates) for

the year ended December 31, 2012, is presented here:

Pace Company $200,000

Sand Company 150,000

Star Company 125,000

Required:

A. Prepare in general journal form the workpaper entries necessary to eliminate intercompany

sales and intercompany profit in the December 31, 2012, consolidated financial

statements workpaper.

B. Calculate the balance to be reported in the consolidated income statement for the

following line items:

Consolidated income

Noncontrolling interest in consolidated income

Controlling interest in consolidated income