1. Pam Corporation owns 70 percent of Sun Company's common stock, acquired January 1, 2017. Patents from the investment are being amortized at a rate of $20,000 per year. Sun regularly sells merchandise to Pam at 150 percent of Sun's cost. Pam's December 31, 2017, and 2018 inventories include goods purchased intercompany of $112,500 and $33,000, respectively. The separate incomes (do not include investment income) of Pam and Sun for 2018 are summarized as follows:
_________________ Pam ___________ Sun
Sales ................ $1,200,000 .... $800,000
Cost of sales ........ (600,000) ..... (500,000)
Other expenses .... (400,000) ..... (100,000)
Separate incomes ... $ 200,000 ... $200,000
Total consolidated income should be allocated to controlling and non-controlling interest shares in the amounts of:
a. $344,550 and $61,950, respectively
b. $358,550 and $60,000, respectively
c. $346,500 and $60,000, respectively
d. $346,500 and $67,950, respectively
2. Pop acquired a 60 percent interest in Son on January 1, 2016, for $360,000, when Son's net assets had a book value and fair value of $600,000. During 2016, Pop sold inventory items that cost $600,000 to Son for $800,000, and Son's inventory at December 31, 2016, included one-fourth of this merchandise. Pop reported separate income from its own operations (excludes investment income) of $300,000, and Son reported a net loss of $150,000 for 2016. Controlling share of consolidated net income for Pop Corporation and Subsidiary for 2016 is:
a. $260,000
b. $180,000
c. $160,000
d. $100,000
3. Sun Corporation, a 75 percent-owned subsidiary of Pam Corporation, sells inventory items to its parent at 125 percent of cost. Inventories of the two affiliates for 2016 are as follows:
____________________________ Pam ____________ Sun
Beginning inventory ...........$400,000 .........$250,000
Ending inventory ..............500,000 ............200,000
Pam's beginning and ending inventories include merchandise acquired from Sun of $150,000 and $200,000, respectively, which is sold in the following year. If Sun reports net income of $300,000 for 2016, Pam's income from Sun will be:
a. $255,000
b. $217,500
c. $215,000
d. $195,000