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Upstream and Downstream Sales: Required

Pace Company owns 85% of Sand Company and all of Star Company. In 2020, Sand Company sold $436,000 to Star Company and $532,000 to Pace Company, with intercompany profits of $18,167 and $22,166.67 respectively. To eliminate intercompany profits in the consolidated financial statements, journal entries will be made to remove the intercompany sales and inventory amounts from each company. The consolidated income statement will report $126,000 in subsidiary income, $12,600 for the noncontrolling interest, and $413,400 for the controlling interest.

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Cindy Aprilia
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93 views2 pages

Upstream and Downstream Sales: Required

Pace Company owns 85% of Sand Company and all of Star Company. In 2020, Sand Company sold $436,000 to Star Company and $532,000 to Pace Company, with intercompany profits of $18,167 and $22,166.67 respectively. To eliminate intercompany profits in the consolidated financial statements, journal entries will be made to remove the intercompany sales and inventory amounts from each company. The consolidated income statement will report $126,000 in subsidiary income, $12,600 for the noncontrolling interest, and $413,400 for the controlling interest.

Uploaded by

Cindy Aprilia
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Upstream and Downstream Sales

Pace Company owns 85% of the outstanding common stock of Sand Company and all the
outstanding common stock of Star Company. During 2020, the affiliates engaged in intercompany
sales as follows:

The following amounts of intercompany profits were included in the December 31, 2019, and
December 31, 2020, inventories of the individual companies:

Income from each company's independent operations (including sales to affiliates) for the year
ended December 31, 2020, is presented here:

Required:
A. Prepare in general journal form the workpaper entries necessary to eliminate intercompany
sales and intercompany profit in the December 31, 2020, consolidated financial statements
workpaper.
2011
Sales $ 436.000
Purchase (Cost of Good $ 436.000
Sold)
Inventory ( Income Statement) $ 18.167 $18.167
Inventory (Balance Sheet)

2012
Sales $532.000
Purchase (Cost of Good $532.000
Sold)

Beginning Retained Earnings $ 16.350,30


Noncontrolling Interest $1.816,70
Inventory (Income $18.167
Statement)

Inventory (Income Statement) $22.166,67


Inventory (Balance Sheet)
$ 22.166,67

B. Calculate the balance to be reported in the consolidated income statement for the following
line items: Consolidated income Noncontrolling interest in consolidated income Controlling
interest in consolidated income
Reported Subsidiary Income $ 130.000
Add: Realized profit in beginning inventory $ 18.167
Less: Unrealized profit in ending inventory $ (22.167)
Subsidiary income included in consolidated income $ 126.000
Noncontrolling interest ownership percentage 10%
Noncontrolling interest in consolidated income $ 12.600

Net income from independent operations $ 300.000


Reported income $ 130.000
Less: Unrealized profit on intercompany sales of 2012 $ (22.167)
Add: Profit on 2011 sales realized in transactions with $ 18.167
third parties
Subsidiary income realized in transactions with third $ 126.000
parties
Share of subsidiary income $ 113.400
Controlling interest in consolidated net income $ 413.400

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