Baxter, Inc., owns 90 percent of Wisconsin, Inc., and 20 percent of Cleveland Company. Wisconsin, in turn, holds 60 percent of Cleveland's outstanding stock. No excess amortization resulted from these acquisitions. During the current year, Cleveland sold a variety of inventory items to Wisconsin for $40,000 although the original cost was $30,000. Of this total, Wisconsin still held $12,000 in inventory (at transfer price) at year-end. During this same period, Wisconsin sold merchandise to Baxter for $100,000 although the original cost was only $70,000. At year-end, $40,000 of these goods (at the transfer price) was still on hand. The initial value method was used to record each of these investments. None of the companies holds any other investments. Using the following separate income statements, determine the figures that would appear on a consolidated income statement: Baxter Wisconsin Cleveland Sales $ (1,000,000 ) $ (450,000 ) $ (280,000 ) Cost of goods sold 670,000 280,000 190,000 Expenses 110,000 60,000 30,000 Dividend income: Wisconsin (36,000 ) 0 0 Cleveland (4,000 ) (12,000 ) 0 Net income $ (260,000 ) $ (122,000 ) $ (60,000 )

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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Baxter, Inc., owns 90 percent of Wisconsin, Inc., and 20 percent of Cleveland Company. Wisconsin, in turn, holds 60 percent of Cleveland's outstanding stock. No excess amortization resulted from these acquisitions. During the current year, Cleveland sold a variety of inventory items to Wisconsin for $40,000 although the original cost was $30,000. Of this total, Wisconsin still held $12,000 in inventory (at transfer price) at year-end.

During this same period, Wisconsin sold merchandise to Baxter for $100,000 although the original cost was only $70,000. At year-end, $40,000 of these goods (at the transfer price) was still on hand.

The initial value method was used to record each of these investments. None of the companies holds any other investments.

Using the following separate income statements, determine the figures that would appear on a consolidated income statement:

	Baxter	Wisconsin	Cleveland
Sales	$	(1,000,000	)	$	(450,000	)	$	(280,000	)
Cost of goods sold		670,000			280,000			190,000
Expenses		110,000			60,000			30,000
Dividend income:
Wisconsin		(36,000	)		0			0
Cleveland		(4,000	)		(12,000	)		0
Net income	$	(260,000	)	$	(122,000	)	$	(60,000	)

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