Question

Adam Ltd. owns 80% of the outstanding shares of Bob Ltd. Adam Ltd. also own 70% of the shares of Xena Ltd. During the year 20X5, Adam sold $ 500,000 (cost) of goods (widgets) to Bob at a 30% markup. Xena sold $ 400,000 (cost) of goods (gadgets) to Adam at a 25% markup.
Adam sold a piece of land (cost $ 100,000) to Bob for $ 50,000.
On October 1, 20X5, Xena sold land (cost $ 80,000) and a building (cost $ 110,000) to Adam for $ 400,000; 40% of the price was allocated to land and 60% of the price was allocated to building. The building had five years of expected life at October 1, 20X5, and was 30% depreciated at that time.
The $ 400,000 was unpaid at year- end and Adam had agreed to pay $ 10,000 interest on the unpaid amount.
An inventory count showed that 20% of the widgets that Bob had purchased from Adam were unsold at December 31, 20X5; 70% of the gadgets that Adam had purchased from Xena were also unsold.

Required
Assume that Adam Ltd. uses the cost method of keeping its accounts.
1. Prepare the consolidation-related eliminations that would be required at December 31, 20X5, to prepare the consolidated financial statements.
2. Calculate the effect on the non- controlling interest. By how much would the income to each non-controlling interest be changed? Keep the two subsidiaries separate.



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  • CreatedMarch 13, 2015
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