Question: Purple Company purchased a 70 interest in Sand Company several

Purple Company purchased a 70% interest in Sand Company several years ago in order to obtain retail outlets for its major products. Since that time, Purple has sold to Sand a substantial portion of its merchandise requirements. At the beginning of the current year, Sand’s inventory of $690,000 was composed of 60% of goods purchased from Purple at markups averaging 30% on Purple’s cost. Sales from Purple to Sand during the current year were $5,600,000. The estimated inter-company profit in Sand’s ending inventory was $194,000. Purple owns buildings and land used in Sand’s retail operations and rented to Sand.
Rentals paid by Sand to Purple during the current year amounted to $743,000. At the end of the current year, Purple sold to Sand for $260,000 land to be used in the development of a shopping centre that had cost Purple $203,500. The gain was included in Purple’s net income for the current year. Purple also holds a one-year, 6% note of Sand on which it has accrued interest revenues of $22,500 during the current year. During the current year, Purple reported net income of $568,100 and Sand reported net income of $248,670. Purple uses the cost method to account for its investment.
Calculate the current year’s consolidated net income attributable to Purple’s shareholders. Assume a 40% tax rate.

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  • CreatedJune 08, 2015
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