Problem $6-4$

LO$2$

On January $1,$ Year $2,$ PAT Ltd$.$ acquired $90\%$ of SAT Inc. when SAT's retained earnings were $$1,000,000.$ There was no acquisition

differential. PAT accounts for its investment under the cost method. SAT sells inventory to PAT on a regular basis at a markup of $30\%$

of selling price. The intercompany sales were $$160,000$ in Year $2$ and $$190,000$ in Year $3.$ The total amount owing by PAT related to

these intercompany sales was $$60,000$ at the end of Year $2$ and $$50,000$ at the end of Year $3.$ On January $1,$ Year $3,$ the inventory of

PAT contained goods purchased from SAT amounting to $$70,000,$ while the December $31,$ Year $3,$ inventory contained goods

purchased from SAT amounting to $$80,000.$ Both companies pay income tax at the rate of $40\%.$

Selected account balances from the records of PAT and SAT for the year ended December $31,$ Year $3,$ were as follows:

Required

$($a$)$ Determine the amount to report on the Year $3$ consolidated financial statements for the selected accounts noted above.

$($b$)$ Indicate how noncontrolling interest on the Year $3$ consolidated income statement and Year $3$ consolidated balance sheet will be

affected by the intercompany transactions noted above.$($b$)$ Indicate how noncontrolling interest on the Year $3$ consolidated income statement and Year $3$ consolidated balance sheet will be affected by the intercompany transactions noted above On January $1.$ Year $2,$ PAT Ltd$.$ acquired $90\%$ of SAT Inc. when SAT's retained earnings were $$1,000,000.$ There was no acquisition differential. PAT accounts for its investment under the cost method. SAT sells inventory to PAT on a regular basis at a markup of $30\%$ of selling price. The intercompany sales were $$160,000$ in Year $2$ and $$190,000$ in Year $3.$ The total amount owing by PAT related to these intercompany sales was $$60,000$ at the end of Year $2$ and $$50,000$ at the end of Year $3.$ On January $1,$ Year $3,$ the inventory of PAT contained goods purchased from SAT amounting to $$70,000,$ while the December $31,$ Year $3,$ inventory contained goods purchased from SAT amounting to $$80,000.$ Both companies pay income tax at the rate of $40\%.$

Selected account balances from the records of PAT and SAT for the year ended December $31.$ Year $3,$ were as follows:

PAT

SAT

Inventory

$ $510,000$

$ $400,000$

Accounts payable

$420,000$

Retained earnings, beginning of year

$2,500,000$

$1,200,000$

$2,600,000$

Sales

$4,100,000$

Cost of sales

$3,200,000$

$1,800,000$

Income tax expense

$180,000$

$150,000$

Required

$($b$)$ Indicate how noncontrolling interest on the Year $3$ consolidated income statement and Year $3$ consolidated balance sheet will be affected by the intercompany transactions noted above.