On January 1, Year 8, Fazli Co. acquired all of the common shares of Gervais. Both...

 

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On January 1, Year 8, Fazli Co. acquired all of the common shares of Gervais. Both companies had no inventory on hand at the beginning of the year. The following transactions occurred in January and February, Year 8: ⚫ On January 10, Gervais purchased $11,200 of inventory from outsiders. On January 20, Gervais sold $6,600 of this inventory to Fazli for $7,920, which represents a markup of 20% over cost. On January 30, Fazli sold $6,300 of the inventory purchased from Gervais to outsiders for $7,875, which represents a markup of 25% over cost. On February 10, Gervais purchased $12,600 of inventory from outsiders. On February 20, Gervais sold $9,600 of inventory to Fazli for $11,520, which represents a markup of 20% over cost. On February 30, Fazli sold $9,000 of inventory purchased from Gervais to outsiders for $11,250, which represents a markup of 25% over cost. Fazli uses the cost method to account for its investment in Gervais. Both companies pay income tax at the rate of 40%. Gervais did not pay any dividends in Year 8. Required: (a) Prepare income statements for January and February for Fazli, Gervais, and Consolidation. Break down cost of sales into its three components. (Leave no cells blank - be certain to enter "0" wherever required. Values in the fourth column (Adjust column) that are to be deducted should be indicated with a minus sign. Input all other amounts as positive values. Round your final answers to nearest whole dollars. Omit $ sign in your response.) (b) Now assume that Fazli uses the equity method to account for its investment in Gervais. What account would change on the three statements in January and what would be the account balance? (Omit $ sign in your response.) (Click to select) $ (c) Now assume that Fazli only owns 80% of the common shares of Gervais and uses the cost method to account for its investment in Gervais. What accounts would change [as compared to part (a)] on the three statements in January and what would be the account balance? (Omit $ sign in your response.) Consolidated net income attributable to Fazli shareholders Consolidated net income attributable to NCI (d) Now assume that Gervais was the parent, Fazli was the subsidiary, and Gervais owned 80% of Fazli. How would this change the allocation of consolidated net income for January? (Omit $ sign in your response.) Consolidated net income attributable to Gervais shareholders Consolidated net income attributable to NCI A A On January 1, Year 8, Fazli Co. acquired all of the common shares of Gervais. Both companies had no inventory on hand at the beginning of the year. The following transactions occurred in January and February, Year 8: ⚫ On January 10, Gervais purchased $11,200 of inventory from outsiders. On January 20, Gervais sold $6,600 of this inventory to Fazli for $7,920, which represents a markup of 20% over cost. On January 30, Fazli sold $6,300 of the inventory purchased from Gervais to outsiders for $7,875, which represents a markup of 25% over cost. On February 10, Gervais purchased $12,600 of inventory from outsiders. On February 20, Gervais sold $9,600 of inventory to Fazli for $11,520, which represents a markup of 20% over cost. On February 30, Fazli sold $9,000 of inventory purchased from Gervais to outsiders for $11,250, which represents a markup of 25% over cost. Fazli uses the cost method to account for its investment in Gervais. Both companies pay income tax at the rate of 40%. Gervais did not pay any dividends in Year 8. Required: (a) Prepare income statements for January and February for Fazli, Gervais, and Consolidation. Break down cost of sales into its three components. (Leave no cells blank - be certain to enter "0" wherever required. Values in the fourth column (Adjust column) that are to be deducted should be indicated with a minus sign. Input all other amounts as positive values. Round your final answers to nearest whole dollars. Omit $ sign in your response.) (b) Now assume that Fazli uses the equity method to account for its investment in Gervais. What account would change on the three statements in January and what would be the account balance? (Omit $ sign in your response.) (Click to select) $ (c) Now assume that Fazli only owns 80% of the common shares of Gervais and uses the cost method to account for its investment in Gervais. What accounts would change [as compared to part (a)] on the three statements in January and what would be the account balance? (Omit $ sign in your response.) Consolidated net income attributable to Fazli shareholders Consolidated net income attributable to NCI (d) Now assume that Gervais was the parent, Fazli was the subsidiary, and Gervais owned 80% of Fazli. How would this change the allocation of consolidated net income for January? (Omit $ sign in your response.) Consolidated net income attributable to Gervais shareholders Consolidated net income attributable to NCI A A

Answer rating: 100% (QA)

a Income Statements for January Fazli Sales 7875 Beginning inventory O Purchases from Gervais 7920 Cost of goods sold Purchases from outsiders O Begin... View the full answer