On January 1, 20X1 P Co acquired 70% ownership of S Ltd. On the acquisition date all identifiable assets and liabilities had book values equal to fair values. P uses the cost method to record its investment in S. For external reporting purposes consolidated statements are required. However, the purchase did result in the acquisition of goodwill of $55,000. During the past few years, a number of transactions have taken place: Inter-company downstream sales during 20X5 were 120,000. An unrealized profit of 17,000 still remains in the unsold ending inventory. The beginning inventory included an unrealized profit of 11,000 related to last year’s downstream inter-company sales. Inter-company upstream sales during 20X5 were 70,000. An unrealized profit of 8,000 remains in the unsold ending inventory. There were no inter-company upstream sales last year. On January 3, 20X3, P sold equipment to S for 88,000. The equipment had a net book value of $60,000 and a remaining useful life of 10 years on the date of sale. On July 8, 20X5, S sold land to P for 67,000. The land had a book value of 55,000. Impairment of goodwill for 20X5 was 5,500. The following financial information is available for the year ending Dec 31, 20X5: P S Net Income 99,000 40,000 Dividends Paid 25,000 10,000 Required: Calculate consolidated net income for the year ending December 31, 20X5. Both companies use a 40% tax rate

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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On January 1, 20X1 P Co acquired 70% ownership of S Ltd. On the acquisition date all identifiable assets and liabilities had book values equal to fair values. P uses the cost method to record its investment in S. For external reporting purposes consolidated statements are required. However, the purchase did result in the acquisition of goodwill of $55,000. During the past few years, a number of transactions have taken place: Inter-company downstream sales during 20X5 were 120,000. An unrealized profit of 17,000 still remains in the unsold ending inventory. The beginning inventory included an unrealized profit of 11,000 related to last year’s downstream inter-company sales. Inter-company upstream sales during 20X5 were 70,000. An unrealized profit of 8,000 remains in the unsold ending inventory. There were no inter-company upstream sales last year. On January 3, 20X3, P sold equipment to S for 88,000. The equipment had a net book value of $60,000 and a remaining useful life of 10 years on the date of sale. On July 8, 20X5, S sold land to P for 67,000. The land had a book value of 55,000. Impairment of goodwill for 20X5 was 5,500. The following financial information is available for the year ending Dec 31, 20X5: P S Net Income 99,000 40,000 Dividends Paid 25,000 10,000 Required: Calculate consolidated net income for the year ending December 31, 20X5. Both companies use a 40% tax rate

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