Consolidated Financial Statements- Intercompany Profits

on Inventory
Problem 1
Prima Company had 90% ownership interest acquired several years ago in Donna
Company of which 800,000 was paid on Jan 1, 2012. The amortization of allocated
excess (identifiable assets) arising from the acquisition amounted to 2,000 per year.
The inventories acquired from the affiliates are:
Beginning Inventory
10,000
Ending Inventory
16,000
The gross profit rate applied to the said intercompany sales of merchandise is 25%
based on sales.
The net income from own operations and the dividends for 2014 using cost model
method were as follows
Prima Company
Donna Company

Net income
120,000
70,000

Dividends paid
8,000
6,000

Requirements:
A. Assuming that Prima is the seller (downstream sale):
1. The investment balance on January 1, 2014 in the books of Prima is?
2. The investment balance on December 1, 2014 in the books of Prima is?
3. The dividend income account on December 31, 2014 in the books of Prima
is?
4. The investment balance on December 31, 2014 in the consolidated
financial statement is?
5. The dividend income account on December 31, 2014 in the consolidated
financial statement is?
6. What is the adjusted net income of the Parent?
7. What is the adjusted net income of the subsidiary?
8. What is the consolidated net income for 2014?
9. The non-controlling interest in the net income for 2014?
10.The profit attributable to the controlling interest (Parents interest) in the
Consolidated Net income for 2014?
B. Assuming that Donna is the seller (Upstream sale):
1. The investment balance on January 1, 2014 in the books of Prima is?
2. The investment balance on December 1, 2014 in the books of Prima is?
3. The dividend income account on December 31, 2014 in the books of Prima
is?
4. The investment balance on December 31, 2014 in the consolidated
financial statement is?
5. The dividend income account on December 31, 2014 in the consolidated
financial statement is?
6. What is the adjusted net income of the Parent?
7. What is the adjusted net income of the subsidiary?
8. What is the consolidated net income for 2014?
9. The non-controlling interest in the net income for 2014?

Consolidated Financial Statements- Intercompany Profits

on Inventory
10.The profit attributable to the controlling interest (Parents interest) in the
Consolidated Net income for 2014?

Problem 2
On January 1, 2012, Pam Company purchased 80% of the outstanding shares of
common stocks of Sam Company by paying 340,000. The common stocks and
retained earnings of Sam Company on this date amounted to 150,000 and 210,000
respectively. Also on this date, the equipment with 10 year remaining life is
undervalued by 20,000.
On January 1, 2014, Sam Company had 150,000 of common stocks and 300,000 of
Retained Earnings. Also on the same date. Pam Company had 1,000,000 common
Stocks and 700,000 of retained earnings.
During the year, Pam Company sold merchandise to Sam for 60,000 and in turn,
purchased 40,000 from Sub Company. Inter-company sales of merchandise were
made at the following gross profit rate:
Sales made by parent..25% on cost
Sales made by subsidiary..20% on sales
On December 31, 2014, 30% of all intercompany sales remain in the ending
inventory of the purchasing affiliate.
The beginning inventory of Pam includes 2,500 worth of merchandise acquired from
Sam on which it has a reported profit of 1,000. On the other hand, the beginning
inventory of Sam includes 3,000 of merchandise acquired from Pam at 35% markup.
The net income from own operations of Pam and Sam are 100,000 and 30,000
respectively. While the dividends paid by Pam and Sam are 60,000 and 10,000
respectively. Sam and Pams Sales were 500,000 and 1,100,000 respectively. While
their Cost of Sales are 720,000 and 880,000 for Sam and Pam respectively.
Requirements:
1.
2.
3.
4.
5.
6.
7.
8.
9.

What is the amount of Goodwill or (income from acquisition)?

What is the adjusted net income of the parent?
What is the adjusted net income of the subsidiary?
What is the consolidated net income?
What is the Non-controlling interest in the net income of the subsidiary?
What is the net income attributable to the parent?
What is the consolidated sale?
What is the consolidated cost of goods sold?
What is the NCINAS on December 31, 2014, using the proportionate basis
(partial goodwill approach)?
10.What is the NCINAS on December 31, 2014, using the full fair value basis (full
goodwill approach)?