Peter Corporation acquired an 80% interest in Stern Corporation several years ago when the book values and fair values of Stern's assets and liabilities were equal. At the time of acquisition, the cost of the 80% interest was equal to 80% of the book value of Stern's net assets. Separate company income statements for Peter and Stern for the year ended December 31, 2014 are summarized as follows:Required:Prepare a consolidated income statement for Peter Corporation and Subsidiary for 2014. Peter$1,000,000Stern$600,000Sales RevenueInvestment income from Stern85,000(300,000)(200,000)$100,000Cost of Goods Sold(600,000)(200,000)$285,000ExpensesNet IncomeDuring 2013, Peter sold merchandise that cost $120,000 to Stern for $180,000. Half of thismerchandise remained in Stern's inventory at December 31, 2013. During 2014, Peter soldmerchandise that cost $150,000 to Stern for $225,000. One-third of this merchandiseremained in Stern's December 31, 2014 inventory.

This question deals with the consolidation income statement. When consolidation is made then we need…

Answered: Peter Corporation acquired an 80%…

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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Peter Corporation acquired an 80% interest in Stern Corporation several years ago when the book values and fair values of Stern's assets and liabilities were equal. At the time of acquisition, the cost of the 80% interest was equal to 80% of the book value of Stern's net assets. Separate company income statements for Peter and Stern for the year ended December 31, 2014 are summarized as follows:

Required:
Prepare a consolidated income statement for Peter Corporation and Subsidiary for 2014.

Peter
$1,000,000
Stern
$600,000
Sales Revenue
Investment income from Stern
85,000
(300,000)
(200,000)
$100,000
Cost of Goods Sold
(600,000)
(200,000)
$285,000
Expenses
Net Income
During 2013, Peter sold merchandise that cost $120,000 to Stern for $180,000. Half of this
merchandise remained in Stern's inventory at December 31, 2013. During 2014, Peter sold
merchandise that cost $150,000 to Stern for $225,000. One-third of this merchandise
remained in Stern's December 31, 2014 inventory.

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