Penguin Corporation acquired 80 percent of the outstanding voting stock of Snow Company on January 1, 2012, for $420,000 in cash and other consideration. At the acquisition date, Penguin assessed Snow's identifiable assets and liabilities at a collective net fair value of $525,000 and the fair value of the 20 percent noncontrolling interest was $105,000. No excess fair value over book value amortization accompanied the acquisition.
The following selected account balances are from the individual financial records of these two companies as of December 31, 2013:
_________________________________________Penguin_________________ Snow
Sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $640,000 .....................$360,000
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . 290,000 .......................197,000
Operating expenses . . . . . . . . . . . . . . . . . . . . . . . . 150,000 .......................105,000
Retained earnings, 1/1/13 . . . . . . . . . . . . . . . . . . . 740,000 .......................180,000
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 346,000 .......................110,000
Buildings (net). . . . . . . . . . . . . . . . . . . . . . . . . . . . 358,000 .......................157,000
Investment income . . . . . . . . . . . . . . . . . . . . . . . Not given ............................ -0-
Each of the following problems is an independent situation:
a. Assume that Penguin sells Snow inventory at a markup equal to 40 percent of cost. Intraentity transfers were $90,000 in 2012 and $110,000 in 2013. Of this inventory, Snow retained and then sold $28,000 of the 2012 transfers in 2013 and held $42,000 of the 2013 transfers until 2014.
On consolidated financial statements for 2013, determine the balances that would appear for the following accounts:
Cost of Goods Sold
Inventory
Noncontrolling Interest in Subsidiary's Net Income
b. Assume that Snow sells inventory to Penguin at a markup equal to 40 percent of cost. Intra-entity transfers were $50,000 in 2012 and $80,000 in 2013. Of this inventory, $21,000 of the 2012 transfers were retained and then sold by Penguin in 2013, whereas $35,000 of the 2013 transfers were held until 2014.
On consolidated financial statements for 2013, determine the balances that would appear for the following accounts:
Cost of Goods Sold
Inventory
Noncontrolling Interest in Subsidiary's Net Income
c. Penguin sells Snow a building on January 1, 2012, for $80,000, although its book value was only $50,000 on this date. The building had a five-year remaining life and was to be depreciated using the straight-line method with no salvage value.
Determine the balances that would appear on consolidated financial statements for 2013 for the following accounts:
Buildings (net)
Operating Expenses
Noncontrolling Interest in Subsidiary's Net Income