Placid Lake Corporation acquired 80 percent of the outstanding voting stock of Scenic, Inc., on January 1,

Question:

Placid Lake Corporation acquired 80 percent of the outstanding voting stock of Scenic, Inc., on January 1, 2012, when Scenic had a net book value of $400,000. Any excess fair value was assigned to intangible assets and amortized at a rate of $5,000 per year.
Placid Lake's 2013 net income before consideration of its relationship with Scenic (and before adjustments for intra-entity sales) was $300,000. Scenic reported net income of $110,000.
Placid Lake distributed $100,000 in dividends during this period; Scenic paid $40,000. At the end of 2013, selected figures from the two companies' balance sheets were as follows:
_______________________________________Placid Lake ____________Scenic
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $140,000.................. $ 90,000
Land. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 600,000................... 200,000
Equipment (net) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 400,000................... 300,000
During 2012, intra-entity sales of $90,000 (original cost of $54,000) were made. Only 20 percent of this inventory was still held within the consolidated entity at the end of 2012. In 2013, $120,000 in intra-entity sales were made with an original cost of $66,000. Of this merchandise, 30 percent had not been resold to outside parties by the end of the year.
Each of the following questions should be considered as an independent situation for the year 2013.
a. What is consolidated net income for Placid Lake and its subsidiary?
b. If the intra-entity sales were upstream, how would consolidated net income be allocated to the controlling and noncontrolling interest?
c. If the intra-entity sales were downstream, how would consolidated net income be allocated to the controlling and noncontrolling interest?
d. What is the consolidated balance in the ending Inventory account?
e. Assume that no intra-entity inventory sales occurred between Placid Lake and Scenic. Instead, in 2012, Scenic sold land costing $30,000 to Placid Lake for $50,000. On the 2013 consolidated balance sheet, what value should be reported for land?
f. Assume that no intra-entity inventory or land sales occurred between Placid Lake and Scenic.
Instead, on January 1, 2012, Scenic sold equipment (that originally cost $100,000 but had a $60,000 book value on that date) to Placid Lake for $80,000. At the time of sale, the equipment had a remaining useful life of five years. What worksheet entries are made for a December 31, 2013, consolidation of these two companies to eliminate the impact of the intra-entity transfer? For 2013, what is the noncontrolling interest's share of Scenic's net income?
Intangible Assets
An intangible asset is a resource controlled by an entity without physical substance. Unlike other assets, an intangible asset has no physical existence and you cannot touch it.Types of Intangible Assets and ExamplesSome examples are patented...
Ending Inventory
The ending inventory is the amount of inventory that a business is required to present on its balance sheet. It can be calculated using the ending inventory formula                Ending Inventory Formula =...
Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...
Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Related Book For  book-img-for-question

Fundamentals of Advanced Accounting

ISBN: 978-0077667061

5th edition

Authors: Joe Ben Hoyle, Thomas Schaefer, Timothy Doupnik

Question Posted: