You are consolidating BigUSA and Small Sub.

Information: • BigUSA owns 100% of the outstanding common stock of Small Sub. • Small Sub was acquired by BigUSA a few years ago (hint: this is not an acquisition accounting exercise).

Inventory Transactions • During the year the two companies sold inventory to each other as follows: BigUSA sold products to Small Sub in the amount of $125,000,000. BigUSA’s gross profit on those sales was $38,000,000. We’ll refer to this as “Big to Small inventory.” Small Sub sold products to BigUSA in the amount of $39,000,000. Small Sub’s gross profit on those sales was $12,000,000. We’ll refer to this as “Small to Big inventory.” As of December 31, 2020, all of the Big to Small inventory had been sold to outside customers. At that date, $17,000,000 of Small to Big inventory was still in BigUSA’s inventory.

Asset Transactions • At the beginning of 2020, Small Sub sold a machine to BigUSA. The selling price (which was paid) was $5,500,000 (which approximated market value at the time). Small Sub book value of the machine was $12,000,000 cost and $8,000,000 accumulated depreciation. Small Sub recognized a gain on the difference, including it in “Other Income.” Small Sub was depreciating the machine over 6 years, using straight-line depreciation with no salvage value. BigUSA is depreciating the machine over 3 years (straight-line, no salvage value).

Other Transactions • BigUSA charges Small Sub a management fee (for various services) in the amount of $1,500,000 for the year 2020. BigUSA includes the fee income in “Other Income.” Small Sub includes the expense in “Administrative” expenses.

A. Prepare a consolidated statement of financial position and a consolidated statement of income for BigUSA and Small Sub. Use the spreadsheet format, you do not need to create financial statements other than in a worksheet format.

B. I suggest you use the format in the spreadsheet, but if you wish to do something different, you may. But the end result must be consolidated financial statements.

C. Your consolidation must factor in the information provided above.

 

2 3 4 5 A B C Consolidation Worksheet Data presented is as of 12/31/20 and for the year then ended. 7 8 Cash 9 Accounts receivable 10 Inventory 11 Other current assets 12 13 Land 14 Building 15 Machinery 16 Accumulated depreciation 18 Patents, net of amortization 19 Investment in Small Sub 20 Total Assets Your Information Amounts are in US Dollars Statement of Financial Position BigUSA 12/31/2020 $ 301,000,000 785,000,000 1,216,900,000 260,000,000 2,562,900,000 301,000,000 2,100,000,000 4,205,000,000 (1,782,000,000) 4,824,000,000 475,000,000 513,100,000 $ 8,375,000,000 Part 1 Part 2 $ D Small Sub 12/31/2020 38,500,000 96,000,000 165,400,000 31,200,000 331,100,000 26,000,000 271,500,000 529,300,000 (287,400,000) 539,400,000 68,700,000 939,200,000 E