Question: L Co owns a controlling interest in M Co and

L Co. owns a controlling interest in M Co. and Q Co. L Co. purchased an 80% interest in M Co. at a time when M Co. reported retained earnings of $500,000. L Co. purchased a 70% interest in Q Co. at a time when Q Co. reported retained earnings of $50,000. There was no acquisition differential for either of these acquisitions.
An analysis of the changes in retained earnings of the three companies during the current year appears below:
Q Co. sells parts to L Co., which after further processing and assembly are sold by L Co. to M Co., where they become a part of the finished product sold by M Co. Intercompany profits included in raw materials inventories at the beginning and end of the current year are estimated as follows:
L Co. uses the cost method to account for its investments and income tax allocation at a 40% rate when it prepares consolidated financial statements.
(a) Calculate consolidated profit attributable to M Co’s shareholders for the current year.
(b) Calculate consolidated retained earnings at the beginning of the current year.

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  • CreatedJune 08, 2015
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