Question: On January 1 Year 2 PAT Ltd acquired 90 of

On January 1, Year 2, PAT Ltd. acquired 90% of SAT Inc. when SAT’s retained earnings were $900,000. There was no acquisition differential. PAT accounts for its investment under the cost method. SAT sells inventory to PAT on a regular basis at a markup of 30% of selling price. The intercompany sales were $150,000 in Year 2 and $180,000 in Year 3. The total amount owing by PAT related to these inter-company sales was $50,000 at the end of Year 2 and $40,000 at the end of Year 3.
On January 1, Year 3, the inventory of PAT contained goods purchased from SAT amounting to $60,000, while the December 31, Year 3, inventory contained goods purchased from SAT amounting to $70,000. Both companies pay income tax at the rate of 40%.
Selected account balances from the records of PAT and SAT for the year ended December 31, Year 3, were as follows:
(a) Determine the amount to report on the Year 3 consolidated financial statements for the above noted accounts.
(b) Indicate how non-controlling interest on the Year 3 consolidated income statement and Year 3 consolidated balance sheet will be affected by the intercompany transactions noted above.

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  • CreatedJune 08, 2015
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