The separate income statements of Coors Company and its 60% owned subsidiary, Vespa Company, for the year ended December 31, 2017, are as follows: Coors Company Vespa CompanySales . . . . . . . . . . . . . . . . . . . . . . . . . . . .$520,000 $370,000Less cost of goods sold. . . . . . . . . . . 350,000 180,000Gross profit . . . . . . . . . . . . . . . . . . . . . .170,000 $190,000Less operating expenses . . . . . . . . . .100,000 90,000Operating income . . . . . . . . . . . . . . . $ 70,000 $100,000Subsidiary (dividend) income . . . . . . 12,600Income before tax . . . . . . . . . . . . . . .. $ 82,600 $100,000Provision for income tax . . . . . . . . . . . 21,756 30,000Net income . . . . . . . . . . . . . . . . . . . . . . $ 60,844 $ 70,000The following additional information is available:a. Coors Company acquires its interest in Vespa Company on July 1, 2015. The excess of cost over book value is attributable to machinery which is undervalued by a total amount of $100,000. The remaining life of the machine is 20 years.b. Vespa Company sells a machine to Coors Company on December 31, 2016, for $10,000. This machine has a book value of $6,000 and an estimated future life of four years at the purchase date. Straight-line depreciation is assumed.c. Coors Company sells $15,000 worth of merchandise to Vespa Company during 2017. Cooper sells its merchandise at a price that enables it to realize a gross profit of 25%. Vespa Company has $2,000 worth of Coors merchandise in its ending inventory.d. A corporate income tax rate of 30% is assumed.Prepare the worksheet adjustments (in journal entry format) pertaining to the purchase cost amortization and the intercompany transactions, and prepare the interperiod tax allocations that result from the elimination of the intercompany transactions. The companies do not qualify as an affiliated group under the tax code.
The separate income statements of Coors Company and its 60% owned subsidiary, Vespa Company, for the year ended December 31, 2017, are as follows:
Coors Company Vespa Company
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . .$520,000 $370,000
Less cost of goods sold. . . . . . . . . . . 350,000 180,000
Gross profit . . . . . . . . . . . . . . . . . . . . . .170,000 $190,000
Less operating expenses . . . . . . . . . .100,000 90,000
Operating income . . . . . . . . . . . . . . . $ 70,000 $100,000
Subsidiary (dividend) income . . . . . . 12,600
Income before tax . . . . . . . . . . . . . . .. $ 82,600 $100,000
Provision for income tax . . . . . . . . . . . 21,756 30,000
Net income . . . . . . . . . . . . . . . . . . . . . . $ 60,844 $ 70,000
The following additional information is available:
a. Coors Company acquires its interest in Vespa Company on July 1, 2015. The excess of cost over book value is attributable to machinery which is undervalued by a total amount of $100,000. The remaining life of the machine is 20 years.
b. Vespa Company sells a machine to Coors Company on December 31, 2016, for $10,000. This machine has a book value of $6,000 and an estimated future life of four years at the purchase date. Straight-line
c. Coors Company sells $15,000 worth of merchandise to Vespa Company during 2017. Cooper sells its merchandise at a price that enables it to realize a gross profit of 25%. Vespa Company has $2,000 worth of Coors merchandise in its ending inventory.
d. A corporate income tax rate of 30% is assumed.
Prepare the worksheet adjustments (in
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