consolidations techniques exercises, intercompany profits (inventory, plant assets and bonds)

Project Description:

1) pro corporation owns 80% the voting stock of stu corporation. on january 1, 2010, prussia paid $391,000 cash for $400,000 par of stad's 10% $1,000,000 par value outstanding bonds, due on april 1, 2015. stu's bonds had a book value of $1,045,000 on january 1, 2010. straight-line amortization is used. what amount of the gain or loss on the constructive retirement of $400,000 of stad bonds on january 1, 2010 was reported in the 2010 consolidated income statement?



2) use the following information to answer the question(s) below.

pil corporation owns 80% of spil inc.'s common stock that was purchased at its underlying book value. at the time of purchase, the book value and fair value of spillway's net assets were equal. the two companies report the following information for 2011 and 2012.

during 2011, one company sold inventory to the other company for $50,000 which cost the transferor $40,000. as of the end of 2011, 30% of the inventory was unsold. in 2012, the remaining inventory was resold outside the consolidated entity.

2011 selected data: pil spil
sales revenue $600,000 $320,000
cost of goods sold 320,000 155,000
other expenses 100,000 89,000
net income $180,000 $76,000
dividends paid 19,000 0

2012 selected data: paggle spillway
sales revenue $580,000 $445,000
cost of goods sold 300,000 180,000
other expenses 130,000 171,000
net income $150,000 $94,000
dividends paid 16,000 5,000

if the sale referred to above was a downstream sale, what will be the total sales revenue reported in the consolidated income statement for 2011?


3) prol company acquired an 90% interest in sol corporation on january 1, 2010. on january 1, 2011, sol sold a building with a book value of $120,000 to prol for $150,000. the building had a remaining useful life of ten years and no salvage value. straight-line depreciation is used. the separate balance sheets of prol and sol on december 31, 2011 included the following balances:

petrol seadig
buildings $500,000 $230,000
accumulated depr. - buildings 180,000 79,000

calculate the consolidated amounts for buildings and accumulated depreciation - buildings that appeared, respectively, on the balance sheet at december 31, 2011?




4) pal corporation owns an 80% interest in sur company acquired at book value several years ago. on january 2, 2011, sur purchased $100,000 par of pal's outstanding 10% bonds for $103,000. the bonds were issued at par and mature on january 1, 2014. straight-line amortization is used. separate incomes of pal and sur for 2011 are $350,000 and $120,000, respectively. pal uses the equity method to account for the investment in seri.

what was the controlling interest share of consolidated net income for 2011?


5) pic inc. had $600,000 par of 8% bonds payable outstanding on january 1, 2011 due january 1, 2015 with an unamortized discount of $12,000. sol is a 90%-owned subsidiary of pic. on january 2, 2011, sol corporation purchased $150,000 par value of pic outstanding bonds for $152,000. the bonds have interest payment dates of january 1 and july 1. straight-line amortization is used.

calculate the bond interest receivable for 2011 of pic bonds on sol.




6) pac company owns a 90% interest in sail company. on january 1, 2010, pac had $300,000, 6% bonds outstanding with an unamortized premium of $9,000. the bonds mature on december 31, 2014. sail acquired one-third of pac's bonds in the open market for $97,000 on january 1, 2010. both companies use straight-line amortization of bond discounts/premiums. interest is paid on december 31. on december 31, 2010, the books of the two affiliates held the following balances:

pac's books
6% bonds payable $300,000
premium on bonds 7,200
interest expense 16,200

sail's books
investment in pac bonds $ 97,600
interest income 6,600

calculate the gain from the bond purchase that appeared on the december 31, 2010 consolidated income statement.


7) plo corporation issued six thousand, $1,000 par, 6% bonds on january 1, 2010, at par. interest is paid on january 1 and july 1 of each year; the bonds mature on january 1, 2015. on january 2, 2012, scar corporation, a 75%-owned subsidiary of plenty, purchased 3,000 of the bonds on the open market at 102.50. plenty's separate net income for 2012 included the annual interest expense for all 3,000 bonds. scar's separate net income for 2012 was $400,000, which included the bond interest received on july 1 as well as the accrual of bond interest revenue earned on december 31. both companies use straight-line amortization of bond discounts/premiums.

using the original information, calculate the amount of consolidated interest expense for 2012.






8) party corporation issued six thousand, $1,000 par, 6% bonds on january 1, 2010, at par. interest is paid on january 1 and july 1 of each year; the bonds mature on january 1, 2015. on january 2, 2012, stair corporation, a 75%-owned subsidiary of party, purchased 3,000 of the bonds on the open market at 102.50. party separate net income for 2012 included the annual interest expense for all 3,000 bonds. stair's separate net income for 2012 was $400,000, which included the bond interest received on july 1 as well as the accrual of bond interest revenue earned on december 31. both companies use straight-line amortization of bond discounts/premiums.

what was the amount of gain or (loss) from the intercompany purchase of party's bonds on january 2, 2012?


9) pitt company owns a 90% interest in sipp company. on january 1, 2010, pitt had $300,000, 6% bonds outstanding with an unamortized premium of $9,000. the bonds mature on december 31, 2014. sipp acquired one-third of pitt bonds in the open market for $97,000 on january 1, 2010. both companies use straight-line amortization of bond discounts/premiums. interest is paid on december 31. on december 31, 2010, the books of the two affiliates held the following balances:

pitt's books
6% bonds payable $300,000
premium on bonds 7,200
interest expense 16,200

sipp's books
investment in pitt bonds $ 97,600
interest income 6,600

calculate the consolidated interest expense and consolidated interest income, respectively, for the consolidated income statement for the year ended december 31, 2010


10) place corporation issued six thousand, $1,000 par, 6% bonds on january 1, 2010, at par. interest is paid on january 1 and july 1 of each year; the bonds mature on january 1, 2015. on january 2, 2012, stay corporation, a 75%-owned subsidiary of place, purchased 3,000 of the bonds on the open market at 102.50. place's separate net income for 2012 included the annual interest expense for all 3,000 bonds. stay's separate net income for 2012 was $400,000, which included the bond interest received on july 1 as well as the accrual of bond interest revenue earned on december 31. both companies use straight-line amortization of bond discounts/premiums.

using the original information, the elimination entries on the consolidation working papers prepared on december 31, 2012 included at least ______

a) credit to bond interest receivable for $180,000.
b) debit to bond interest expense for $360,000.
c) credit to bond interest expense for $180,000 and a debit to bond interest payable for $90,000.
d) debit to bond interest revenue for $360,000.


11) potty corporation issued six thousand, $1,000 par, 6% bonds on january 1, 2010, at par. interest is paid on january 1 and july 1 of each year; the bonds mature on january 1, 2015. on january 2, 2012, scale corporation, a 75%-owned subsidiary of potty, purchased 3,000 of the bonds on the open market at 102.50. potty's separate net income for 2012 included the annual interest expense for all 3,000 bonds. scale's separate net income for 2012 was $400,000, which included the bond interest received on july 1 as well as the accrual of bond interest revenue earned on december 31. both companies use straight-line amortization of bond discounts/premiums.

using the original information, calculate the balances for the bonds payable and bond interest payable accounts, respectively, for the consolidated balance sheet for december 31, 2013.


12) pli inc. had $600,000 par of 8% bonds payable outstanding on january 1, 2011 due january 1, 2015 with an unamortized discount of $12,000. sat is a 90%-owned subsidiary of pli. on january 2, 2011, sat corporation purchased $150,000 par value of pli's outstanding bonds for $152,000. the bonds have interest payment dates of january 1 and july 1. straight-line amortization is used.

what is the amount of bonds payable in the december 31, 2011 consolidated balance sheet of pli corporation and subsidiary



13) on january 1, 2010, skully corporation purchased a delivery truck with an expected useful life of five years, and a salvage value of $8,000. on january 1, 2012, skully sold the truck to pac corporation. pac assumed the same salvage value and remaining life of three years used by skully. straight-line depreciation is used by both companies. on january 1, 2012, skully recorded the following journal entry:

debit credit
cash 50,000
accumulated depreciation 18,000
truck 53,000
gain on sale of truck 15,000

pac holds 60% of skully. skully reported net income of $55,000 in 2012 and pac’s separate net income (excludes interest in skully) for 2012 was $98,000.

what was the controlling interest share in consolidated net income for 2012?


14) pley corporation sold equipment to its 90%-owned subsidiary, sour corp., on january 1, 2012. pley sold the equipment for $100,000 when its book value was $75,000 and it had a 5-year remaining useful life with no expected salvage value. straight-line depreciation is used by both companies. separate balance sheets for pley and sour included the following equipment and accumulated depreciation amounts on december 31, 2012:

pley sour
equipment $850,000 $300,000
less: accumulated depreciation (200,000) (60,000)
equipment-net $650,000 $240,000

calculate the consolidated amounts
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