PROBLEM ON INTERCOMPANY SALES Timmy Co. acquired 80% interest in Princess Bubblegum Company on January 2, 2018 for $2,520,000. On this date, the share capital and retained earnings of the two companies are: Timmy Co. Princess Bubblegum Co. Share Capital $6,000,000 $2,250,000 Retained Earnings 3,000,000 450,000 On January 2, 2018: the assets and liabilities of Princess Bubblegum Co. were stated at their fair values except for machinery (remaining life 3 years) which is $225,000 lower than its fair value. On September 30, 2018: Princess Bubblegum sold merchandise to Timmy Co. at an inter-company profit of $150,000; 25% was still unsold at year-end. On October 1, 2019: Princess Bubblegum purchased merchandise from Timmy for $3,600,000. The selling affiliate included a 20% mark-up cost on this date. Only 75% of these purchases had been sold to unrelated parties as of December 31, 2019. As of December 31, 2019, goodwill was determined to be impaired by $60,000. The following is the summary of the 2019 transactions of the affiliated companies: TIMMY CO. PRINCESS BUBBLEGUM CO. Net Income $1,500,000 600,000 Dividends Declared 600,000 180,000 Non-controlling interest is stated at fair value. Determine the Non-controlling interest in Net income presented in the 2019 consolidated financial statements.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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PROBLEM ON INTERCOMPANY SALES

Timmy Co. acquired 80% interest in Princess Bubblegum Company on January 2, 2018 for $2,520,000. On this date, the share capital and retained earnings of the two companies are:

	Timmy Co.	Princess Bubblegum Co.
Share Capital	$6,000,000	$2,250,000
Retained Earnings	3,000,000	450,000

On January 2, 2018:

the assets and liabilities of Princess Bubblegum Co. were stated at their fair values except for machinery (remaining life 3 years) which is $225,000 lower than its fair value.

On September 30, 2018:

Princess Bubblegum sold merchandise to Timmy Co. at an inter-company profit of $150,000; 25% was still unsold at year-end.

On October 1, 2019:

Princess Bubblegum purchased merchandise from Timmy for $3,600,000. The selling affiliate included a 20% mark-up cost on this date. Only 75% of these purchases had been sold to unrelated parties as of December 31, 2019.

As of December 31, 2019, goodwill was determined to be impaired by $60,000. The following is the summary of the 2019 transactions of the affiliated companies:

	TIMMY CO.	PRINCESS BUBBLEGUM CO.
Net Income	$1,500,000	600,000
Dividends Declared	600,000	180,000

Non-controlling interest is stated at fair value.

Determine the Non-controlling interest in Net income presented in the 2019 consolidated financial statements.

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