Controlling Interest, Upstream Sales

Refer to Exercise 6-4. Using the same figures, assume that the merchandise mentioned was included in Pearces inventory, having been purchased from Searl.

Required: Calculate the controlling interest in consolidated net income for 2011 and 2012.

EXERCISE 6-4 Controlling Interest, Downstream Sales LO 2 On January 1, 2011, Pearce Company purchased an 80% interest in the capital stock of Searl Company for $2,460,000. At that time, Searl Company had capital stock of $1,500,000 and re- tained earnings of $300,000. The difference between book of value Searl equity and the value implied by the purchase price was attributed to specific assets of Searl Company as follows: 375,000 to equipment of Searl Company with a five-year remaining life. 187,500 to land held by Searl Company. 112,500 to inventory of Searl Company. Searl uses the FIFO assumption in pricing its inventory, and 600,000 that could not be assigned to specific assets or liabilities of Searl Company. $1,275,000 Total At year-end 2011 and 2012, Searl had in its inventory merchandise that it had purchased from Pearce at a 25% markup on cost during each year in the following amounts: 2011 $ 90,000 2012 $105,000 During 2011, Pearce reported net income from independent operations (including sales to affiliates) of $1,500,000, while Searle reported net income of $600,000. In 2012, Pearce's net income from independent operations (including sales to affiliates) was $1,800,000 and Searl's was $750,000