Computing the amount of investment income and preparing [I] consolidation entries-Cost method Assume that a wholly owned subsidiary sells inventory to the parent company. The parent company, ultimately, sells the inventory to customers outside of the consolidated group. You have compiled the following data for the years ending 2015 and 2016 Subsidiary Net Intercompany Income 2016 $1,200,000 2015 $960,000 Assume that inventory not remaining at the end of the year was sold outside of the consolidated group during the year. The subsidiary paid $900,000 in dividends during 2016. a. How much Income (loss) from subsidiary should the parent report in its pre-consolidation income statement the year ending 2016 assuming that it uses the cost method of accounting for its Equity Investment? $0 [Icogs] b. Prepare the required [I] consolidation entries for 2016. Consolidation Journal [sales] Inventory Sales Gross Profit % $180,000 3496 $120,000 3096 [Icogs] [pay) Description Inventory Remaining at Receivable End of Year (Payable) 15% $60.000 18% $48,000 To recognize prior year profit on intercompany sales. + + To eliminate intercompany sales. + + To defer current period profit on intercompany sales. To eliminate intercompany receivables/payables. Debit 0 0 0 0 0 0 0 0 Credit 0 0 0 0 0 0 0 0
Computing the amount of investment income and preparing [I] consolidation entries-Cost method Assume that a wholly owned subsidiary sells inventory to the parent company. The parent company, ultimately, sells the inventory to customers outside of the consolidated group. You have compiled the following data for the years ending 2015 and 2016 Subsidiary Net Intercompany Income 2016 $1,200,000 2015 $960,000 Assume that inventory not remaining at the end of the year was sold outside of the consolidated group during the year. The subsidiary paid $900,000 in dividends during 2016. a. How much Income (loss) from subsidiary should the parent report in its pre-consolidation income statement the year ending 2016 assuming that it uses the cost method of accounting for its Equity Investment? $0 [Icogs] b. Prepare the required [I] consolidation entries for 2016. Consolidation Journal [sales] Inventory Sales Gross Profit % $180,000 3496 $120,000 3096 [Icogs] [pay) Description Inventory Remaining at Receivable End of Year (Payable) 15% $60.000 18% $48,000 To recognize prior year profit on intercompany sales. + + To eliminate intercompany sales. + + To defer current period profit on intercompany sales. To eliminate intercompany receivables/payables. Debit 0 0 0 0 0 0 0 0 Credit 0 0 0 0 0 0 0 0
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Please help me understand the question
![Computing the amount of investment income and preparing [I] consolidation entries-Cost method
Assume that a wholly owned subsidiary sells inventory to the parent company. The parent company, ultimately, sells the inventory to customers outside of the consolidated group. You have compiled the following data for the years ending 2015 and 2016:
2016
2015
$0
Subsidiary Net Intercompany
Income
$1,200,000
$960,000
Assume that inventory not remaining at the end of the year was sold outside of the consolidated group during the year. The subsidiary paid $900,000 in dividends during 2016.
a. How much Income (loss) from subsidiary should the parent report in its pre-consolidation income statement the year ending 2016 assuming that it uses the cost method of accounting for its Equity Investment?
[Icogs]
b. Prepare the required [I] consolidation entries for 2016.
Consolidation Journal
Description
[Isales]
Inventory Sales Gross Profit %
$180,000
34%
$120,000
30%
[Icogs]
[payl
Inventory
Remaining at Receivable
End of Year (Payable)
$60,000
$48,000
15%
18%
◆
To recognize prior year profit on intercompany sales.
To eliminate intercompany sales.
♦
To defer current period profit on intercompany sales.
◆
To eliminate intercompany receivables/payables.
Debit
0
0
0
0
0
0
0
0
Credit
0
0
0
0
0
0
0
0](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F3cadaab7-0242-405d-ab75-d1a15c225b30%2F3e4f2a7b-f03b-4847-a7d6-121753eb8cad%2Fmy0puji_processed.png&w=3840&q=75)
Transcribed Image Text:Computing the amount of investment income and preparing [I] consolidation entries-Cost method
Assume that a wholly owned subsidiary sells inventory to the parent company. The parent company, ultimately, sells the inventory to customers outside of the consolidated group. You have compiled the following data for the years ending 2015 and 2016:
2016
2015
$0
Subsidiary Net Intercompany
Income
$1,200,000
$960,000
Assume that inventory not remaining at the end of the year was sold outside of the consolidated group during the year. The subsidiary paid $900,000 in dividends during 2016.
a. How much Income (loss) from subsidiary should the parent report in its pre-consolidation income statement the year ending 2016 assuming that it uses the cost method of accounting for its Equity Investment?
[Icogs]
b. Prepare the required [I] consolidation entries for 2016.
Consolidation Journal
Description
[Isales]
Inventory Sales Gross Profit %
$180,000
34%
$120,000
30%
[Icogs]
[payl
Inventory
Remaining at Receivable
End of Year (Payable)
$60,000
$48,000
15%
18%
◆
To recognize prior year profit on intercompany sales.
To eliminate intercompany sales.
♦
To defer current period profit on intercompany sales.
◆
To eliminate intercompany receivables/payables.
Debit
0
0
0
0
0
0
0
0
Credit
0
0
0
0
0
0
0
0
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education