Chapter 5, Problem 20P

a.

To determine

Determine balances for the following items that would appear on consolidated financial statements for 2015:

• Cost of Goods Sold
• Inventory
• Net Income Attributable to Non-controlling Interest

Explanation of Solution

Computation of the consolidated balance of cost of goods sold:

Particulars	Amount
Balance of Company P	$             410,000
Add: Balance of Cost of goods sold of Company S	$             317,000
Less: Intra-entity transfer	$            (134,000)
Less: Defer unrealized gross profit of 2014	$            (19,500)
Add: Defer unrealized gross profit of 2015	$           24,750
Consolidated balance of cost of goods sold	$           598,250

Table: (1)

Thus, the consolidated balance of cost of goods sold in 2015 is $598,250.

Computation of the consolidated total for inventory at December 31:

Particulars	Amount
Balance of Company P	$             370,000
Add: Balance of inventory of Company S	$             144,000
Add: Defer unrealized gross profit of 2015	$            (24,750)
Consolidated balance of inventory	$           489,250

Table: (2)

Thus, the consolidated total for inventory at December 31 is $489,250.

Computation of Net Income Attributable to Non-controlling Interest:

Particulars	Amount
Sales	$       600,000
Less: Cost of goods sold	$     (317,000)
Less: Operating expenses	$     (129,000)
Net income	$       154,000
Percent of ownership of non-controlling interest	20%
Net income attributable to non-controlling interest	$         30,800

Table: (3)

Working note:

Computation of unrealized gross profit:

Particulars	Amount
Intra-entity gross profit percentage $\left(\frac{60\%}{1.60}\right)$	37.5%
Inventory unsold at year end	$ 66,000
Unrealized gross profit of 2015	$   24,750

Table: (4)

b.

To determine

Determine balances for the following items that would appear on consolidated financial statements for 2015:

• Cost of Goods Sold
• Inventory
• Net Income Attributable to Non-controlling Interest

Explanation of Solution

Computation of the consolidated balance of cost of goods sold:

Particulars	Amount
Balance of Company P	$             410,000
Add: Balance of Cost of goods sold of Company S	$             317,000
Less: Intra-entity transfer	$            (104,000)
Less: Defer unrealized gross profit of 2014	$            (16,875)
Add: Defer unrealized gross profit of 2015	$           22,125
Consolidated balance of cost of goods sold	$           628,250

Table: (5)

Thus, the consolidated balance of cost of goods sold in 2015 is $628,250.

Computation of the consolidated total for inventory at December 31:

Particulars	Amount
Balance of Company P	$             370,000
Add: Balance of inventory of Company S	$             144,000
Add: Defer unrealized gross profit of 2015	$            (22,125)
Consolidated balance of inventory	$           491,875

Table: (6)

Thus, the consolidated total for inventory at December 31 is $491,875.

Computation of Net Income Attributable to Non-controlling Interest:

Particulars	Amount
Sales	$       600,000
Less: Cost of goods sold	$     (317,000)
Less: Operating expenses	$     (129,000)
Net income	$       154,000
Add: Unrealized gross profit of 2014	$         16,875
Less: Unrealized gross profit of 2015	$       (22,125)
Income to subsidiary to be consolidated	$       148,750
Percent of ownership of non-controlling interest	20%
Net income attributable to non-controlling interest	$         29,750

Table: (7)

Working note:

Computation of unrealized gross profit:

Particulars	Amount
Intra-entity gross profit percentage $\left(\frac{60\%}{1.60}\right)$	37.5%
Inventory unsold at year end	$ 59,000
Unrealized gross profit of 2015	$   22,125

Table: (8)

c.

To determine

Determine balances for the following items that would appear on consolidated financial statements for 2015:

• Buildings (net)
• Operating expenses
• Net Income Attributable to Non-controlling Interest

Explanation of Solution

Computation of the consolidated balance of building:

Particulars	Amount
Balance of Company P	$             382,000
Add: Balance of building of Company S	$             181,000
Less: Intra-entity transfer	$            (54,000)
Add: Excess depreciation in 2014	$            (10,800)
Add: Excess depreciation in 2015	$           10,800
Consolidated balance of building	$           530,600

Table: (9)

Thus, the consolidated balance of building in 2015 is $530,600.

Computation of the consolidated total for operating expenses at December 31:

Particulars	Amount
Balance of Company P	$             174,000
Add: Balance of inventory of Company S	$             129,000
Add: Excess depreciation	$            (10,800)
Consolidated balance of operating expenses	$           292,200

Table: (10)

Thus, the consolidated total for operating expenses at December 31 is $292,200.

Computation of Net Income Attributable to Non-controlling Interest:

Particulars	Amount
Sales	$       600,000
Less: Cost of goods sold	$     (317,000)
Less: Operating expenses	$     (129,000)
Net income	$       154,000
Percent of ownership of non-controlling interest	20%
Net income attributable to non-controlling interest	$         30,800

Table: (11)