Pexo Industries purchases the majority of their raw materials from a wholly-owned subsidiary, Spring made Chemicals. Pexo
Question:
Pexo Industries purchases the majority of their raw materials from a wholly-owned subsidiary, Spring made Chemicals. Pexo purchased Spring made to assure supply availability at a time when the materials were being rationed in the industry due to supply issues overseas. Pexo was able to purchase Spring made at the book value of Spring made's net assets. At the time of purchase, the book value and fair value of Spring made's net assets were equal. Pexo purchased $2,890,000 of materials from Spring made in 2014 alone. All intercompany sales are made at 120% of cost, although Spring made is able to mark up their products 80% to other outside buyers. Pexo carried inventory on their books at the beginning and end of the year in the amount of $450,000 and $480,000, respectively, all of which had been purchased from Spring made. Income statement information for both companies for 2014 is as follows:
Pexo Spring made
Sales Revenue $3,793,000 $4,441,000
Investment income from Spring made 245,000
Cost of Goods Sold (3,139,000) (3,270,000)
Expenses (257,000) (921,000)
Net Income $642,000 $250,000
Prepare a consolidated income statement for Pexo Corporation and Subsidiary for 2014.
Statistics for Business and Economics
ISBN: 978-0132930192
8th edition
Authors: Paul Newbold, William Carlson, Betty Thorne