ACC 4100 Lecture Notes - Lecture 8: Retained Earnings
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Parson Company acquired an 80 percent interest in Syber Companyon January 1, 2017. Any portion of Syber's business fair value inexcess of its corresponding book value was assigned to trademarks.This intangible asset has subsequently undergone annualamortization based on a 15-year life. Over the past two years,regular intra-entity inventory sales transpired between the twocompanies. No payment has yet been made on the latest transfer. Alldividends are paid in the same period as declared.
The individual financial statements for the two companies aswell as consolidated totals for 2018 follow:
Parson Company | Syber Company | Consolidated Totals | |||||||||
Sales | $ | (900,000 | ) | $ | (700,000 | ) | $ | (1,460,000 | ) | ||
Cost of goods sold | 550,000 | 450,000 | 870,000 | ||||||||
Operating expenses | 120,000 | 130,000 | 253,000 | ||||||||
Income of Syber | (89,800 | ) | 0 | 0 | |||||||
Separate company net income | $ | (319,800 | ) | $ | (120,000 | ) | |||||
Consolidated net income | $ | (337,000 | ) | ||||||||
Net income attributable tononcontrolling interest | 17,200 | ||||||||||
Net income attributable toParson Company | $ | (319,800 | ) | ||||||||
Retained earnings, 1/1/18 | $ | (626,600 | ) | $ | (310,000 | ) | $ | (626,600 | ) | ||
Net income (above) | (319,800 | ) | (120,000 | ) | (319,800 | ) | |||||
Dividends declared | 80,000 | 40,000 | 80,000 | ||||||||
Retained earnings, 12/31/18 | $ | (866,400 | ) | $ | (390,000 | ) | $ | (866,400 | ) | ||
Cash and receivables | $ | 398,000 | $ | 90,000 | $ | 464,000 | |||||
Inventory | 200,000 | 180,000 | 365,500 | ||||||||
Investment in Syber Company | 398,400 | 0 | 0 | ||||||||
Land, buildings, andequipment | 400,000 | 290,000 | 690,000 | ||||||||
Trademarks | 0 | 0 | 32,500 | ||||||||
Total assets | $ | 1,396,400 | $ | 560,000 | $ | 1,552,000 | |||||
Liabilities | $ | (320,000 | ) | $ | (80,000 | ) | $ | (378,900 | ) | ||
Common stock | (170,000 | ) | (90,000 | ) | (170,000 | ) | |||||
Additional paid-in capital | (40,000 | ) | 0 | (40,000 | ) | ||||||
Noncontrolling interest inSyber | 0 | 0 | (96,700 | ) | |||||||
Retained earnings (above) | (866,400 | ) | (390,000 | ) | (866,400 | ) | |||||
Total liabilities andequities | $ | (1,396,400 | ) | $ | (560,000 | ) | $ | (1,552,000 | ) | ||
What method does Parson use to account for its investment inSyber?
What is the balance of the intra-entity inventory gross profitdeferred at the end of the current period?
What amount was originally allocated to the trademarks?
What is the amount of the current year intra-entity inventorysales?
Were the intra-entity inventory sales made upstream ordownstream?
What is the balance of the intra-entity liability at the end ofthe current year?
What amount of intra-entity gross profit was deferred from thepreceding period and recognized in the current period?
What was the ending Noncontrolling Interest in Syber Companycomputed?
With a tax rate of 40 percent, what income tax journal entry isrecorded if the companies prepare a consolidated tax return?
With a tax rate of 40 percent, what income tax journal entry isrecorded if these two companies prepare separate tax returns?
Protrade Corporation acquired 80 percent of the outstanding voting stock of Seacraft Company on January 1, 2014, for $408,000 in cash and other consideration. At the acquisition date, Protrade assessed Seacraftâs identifiable assets and liabilities at a collective net fair value of $535,000 and the fair value of the 20 percent noncontrolling interest was $102,000. No excess fair value over book value amortization accompanied the acquisition.
The following selected account balances are from the individual financial records of these two companies as of December 31, 2015: |
Protrade | Seacraft | |||||
Sales | $ | 650,000 | $ | 370,000 | ||
Cost of goods sold | 295,000 | 202,000 | ||||
Operating expenses | 151,000 | 106,000 | ||||
Retained earnings, 1/1/15 | 750,000 | 190,000 | ||||
Inventory | 347,000 | 111,000 | ||||
Buildings (net) | 359,000 | 158,000 | ||||
Investment income | Not given | 0 | ||||
Each of the following problems is an independent situation:
a. | Assume that Protrade sells Seacraft inventory at a markup equal to 60 percent of cost. Intra-entity transfers were $91,000 in 2014 and $111,000 in 2015. Of this inventory, Seacraft retained and then sold $29,000 of the 2014 transfers in 2015 and held $43,000 of the 2015 transfers until 2016. cost of goods sold: Inventory: Net income attributable to noncontrolling interest: Assume that Seacraft sells inventory to Protrade at a markup equal to 60 percent of cost. Intra-entity transfers were $51,000 in 2014 and $81,000 in 2015. Of this inventory, $22,000 of the 2014 transfers were retained and then sold by Protrade in 2015, whereas $36,000 of the 2015 transfers were held until 2016.
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