Frigatebird Co. bought 75% of the outstanding voting stock of Cliff Corporation at book value several years
Question:
Frigatebird Co. bought 75% of the outstanding voting stock of Cliff Corporation at book value several years ago. Frigatebird sells merchandise to Cliff at 125% above Frigatebird’s cost. Intercompany sales from Frigatebird to Cliff for 2005 were $650,000. Unrealized profits in Cliff’s December 31, 2004 inventory and December 31, 2005 inventory were $27,000 and $38,000, respectively. Cliff reported net income of $900,000 for 2005.
Required:
1. Determine Frigatebird’s income from Cliff for 2005.
2. In General Journal format, prepare consolidation working paper entries to eliminate the effects of the intercompany inventory sales assuming the perpetual inventory method is used.
Advanced Accounting
ISBN: 978-0133451863
12th edition
Authors: Floyd A. Beams, Joseph H. Anthony, Bruce Bettinghaus, Kenneth Smith