Placid Lake Corporation acquired 80 percent of the outstanding voting stock of Scenic, Inc., on January 1, 2020, when Scenic had a net book value of $400,000. Any excess fair value was assigned to intangible assets and amortized at a rate of $5,000 per year. Placid Lake's 2021 net income before consideration of its relationship with Scenic (and before adjustments for intra- entity sales) was $300,000. Scenic reported net income of $110,00O. Placid Lake declared $100,000 in dividends during this period; Scenic paid $40,000. At the end of 2021, selected figures from the two companies' balance sheets were as follows: Placid Lake Scenic $ 140,000 600,000 400,000 $ 90,000 200,000 300,000 Inventory Land Equipment (net) During 2020, intra-entity sales of $90,000 (original cost of $54,000) were made. Only 20 percent of this inventory was still held within the consolidated entity at the end of 2020. In 2021, $120,000 in intra-entity sales were made with an original cost of the year. $66,000. Of this merchandise, 30 percent had not been res to outside parties by the end Each of the following questions should be considered as an independent situation for the year 2021. a. What is consolidated net income for Placid Lake and its subsidiary? b. If the intra-entity sales were upstream, how would consolidated net income be allocated to the controlling and noncontrolling interest? c. If the intra-entity sales were downstream, how would consolidated net income be allocated to the controlling and noncontrolling interest?
Placid Lake Corporation acquired 80 percent of the outstanding voting stock of Scenic, Inc., on January 1, 2020, when Scenic had a net book value of $400,000. Any excess fair value was assigned to intangible assets and amortized at a rate of $5,000 per year. Placid Lake's 2021 net income before consideration of its relationship with Scenic (and before adjustments for intra- entity sales) was $300,000. Scenic reported net income of $110,00O. Placid Lake declared $100,000 in dividends during this period; Scenic paid $40,000. At the end of 2021, selected figures from the two companies' balance sheets were as follows: Placid Lake Scenic $ 140,000 600,000 400,000 $ 90,000 200,000 300,000 Inventory Land Equipment (net) During 2020, intra-entity sales of $90,000 (original cost of $54,000) were made. Only 20 percent of this inventory was still held within the consolidated entity at the end of 2020. In 2021, $120,000 in intra-entity sales were made with an original cost of the year. $66,000. Of this merchandise, 30 percent had not been res to outside parties by the end Each of the following questions should be considered as an independent situation for the year 2021. a. What is consolidated net income for Placid Lake and its subsidiary? b. If the intra-entity sales were upstream, how would consolidated net income be allocated to the controlling and noncontrolling interest? c. If the intra-entity sales were downstream, how would consolidated net income be allocated to the controlling and noncontrolling interest?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Placid Lake Corporation acquired 80 percent of the outstanding voting stock of Scenic, Inc., on January 1, 2020,
when Scenic had a net book value of $400,000. Any excess fair value was assigned to intangible assets and
amortized at a rate of $5,000 per year.
Placid Lake's 2021 net income before consideration of its relationship with Scenic (and before adjustments for intra-
entity sales) was $300,000. Scenic reported net income of $110,000. Placid Lake declared $100,000 in dividends
during this period; Scenic paid $40,000. At the end of 2021, selected figures from the two companies' balance
sheets were as follows:
Placid Lake
Scenic
$ 140,000
600,000
400,000
$90,000
200,000
300,000
Inventory
Land
Equipment (net)
During 2020, intra-entity sales of $90,000 (original cost of $54,000) were made. Only 20 percent of this inventory
was still held within the consolidated entity at the end of 2020. In 2021, $120,000 in intra-entity sales were made
with an original cost of $66,000. Of this merchandise, 30 percent had not been resold to outside parties by the end
of the year.
Each of the following questions should be considered as an independent situation for the year 2021.
a. What is consolidated net income for Placid Lake and its subsidiary?
b. If the intra-entity sales were upstream, how would consolidated net income be allocated to the controlling and
noncontrolling interest?
c. If the intra-entity sales were downstream, how would consolidated net income be allocated to the controlling and
noncontrolling interest?
d. What is the consolidated balance in the ending Inventory account?
e. Assume that no intra-entity inventory sales occurred between Placid Lake and Scenic. Instead, in 2020, Scenic
sold land costing $30,000 to Placid Lake for $50,000. On the 2021 consolidated balance sheet, what value
should be reported for land?
f-1. Assume that no intra-entity inventory or land sales occurred between Placid Lake and Scenic. Instead, on
January 1, 2020, Scenic sold equipment (that originally cost $100,000 but had a $60,000 book value on that
date) to Placid Lake for $80,000. At the time of sale, the equipment had a remaining useful life of five years.
What worksheet entries are made for a December 31, 2021, consolidation of these two companies to eliminate
the impact of the intra-entity transfer?
f-2. Assume that no intra-entity inventory or land sales occurred between Placid Lake and Scenic. Instead, on
January 1, 2020, Scenic sold equipment (that originally cost $100,000 but had a $60,000 book value on that
date) to Placid Lake for $80,000. At the time of sale, the equipment had a remaining useful life of five years. For
2021, what is the noncontrolling interest's share of Scenic's net income?
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