A- Palermo Corporation acquired an 80% interest in Steel Corporation at a cost equal to 80%...
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A- Palermo Corporation acquired an 80% interest in Steel Corporation at a cost equal to 80% of the book value of Steel's net assets several years ago. At the time of purchase, the fair value and book value of Steel's assets and liabilities were equal. Palermo purchases its entire inventory from Steel at 150% of Steel's cost. During 2020, Steel sold $490,000 of merchandise to Palermo. Palermo's beginning and ending inventories for 2020 were $72,000 and $66,000, respectively. Income statement information for both companies for 2020 is as follows: Sales Revenue Income from Steel Cost of Goods Sold Expenses Net Income Palermo $ 820,000 145,600 (460,000) (120,000) $385.600 Steel $440,000 (165,000) (95,000) $ 180,000 Required: 1- Prepare a consolidated income statement for Palermo Corporation and Subsidiary for 2020. 2- Determine which consolidated income statement items would (or would not) change if Palermo were the seller and Steel was the buyer. Explain why. (16.6 marks) A- Palermo Corporation acquired an 80% interest in Steel Corporation at a cost equal to 80% of the book value of Steel's net assets several years ago. At the time of purchase, the fair value and book value of Steel's assets and liabilities were equal. Palermo purchases its entire inventory from Steel at 150% of Steel's cost. During 2020, Steel sold $490,000 of merchandise to Palermo. Palermo's beginning and ending inventories for 2020 were $72,000 and $66,000, respectively. Income statement information for both companies for 2020 is as follows: Sales Revenue Income from Steel Cost of Goods Sold Expenses Net Income Palermo $ 820,000 145,600 (460,000) (120,000) $385.600 Steel $440,000 (165,000) (95,000) $ 180,000 Required: 1- Prepare a consolidated income statement for Palermo Corporation and Subsidiary for 2020. 2- Determine which consolidated income statement items would (or would not) change if Palermo were the seller and Steel was the buyer. Explain why. (16.6 marks)
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1 Consolidated Income Statement for Palermo Corporation and Subsidiary for 2020 Sales Revenue 820000 ... View the full answer
Related Book For
Advanced Financial Accounting
ISBN: 978-0078025624
10th edition
Authors: Theodore E. Christensen, David M. Cottrell, Richard E. Baker
Posted Date:
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