Question

Several years ago Polar Inc. acquired an 80% interest in Icecap Co. The book values of...

Several years ago Polar Inc. acquired an 80% interest in Icecap Co. The book values of Icecap's asset and liability accounts at that time were considered to be equal to their fair values. Polar’s acquisition value corresponded to the underlying book value of Icecap so that no allocations or goodwill resulted from the transfer.

The following selected account balances were from the individual financial records of these two companies as of December 31, 2018:

Polar

Icecap

Inc.

Co.

Sales

$     896,000

$     504,000

Cost of goods sol

d

406,000

276,000

Operating expenses

210,000

147,000

Retained earnings, 1/1/18

1,036,000

252,000

Inventory

484,000

154,000

Buildings (net)

501,000

220,000

Investment income

not given

Assume that Icecap sold inventory to Polar at a markup equal to 25% of cost. Intra-entity transfers were $70,000 in 2017 and $112,000 in 2018. Of this inventory, $29,000 of the 2017 transfers were retained and then sold by Polar in 2018, whereas $49,000 of the 2018 transfers was held until 2019.

For the consolidated financial statements for 2018, determine the balances that would appear for the following accounts: (i) Cost of Goods Sold; (ii) Inventory; and (iii) Net income attributable to the noncontrolling interest (iv) Equity income in Icecap (under Polar IS investment income not given, equity method)

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Answer #1

1) Cost of goods sold

49000/125*25= $ 9800 will be removed as intra entity transfer.

Polar Inc                           $ 8,96,000

Ice Cap Inc                        $ 2,76,000

Less: Intra Co Adj                   -9800

                                        $ 11,62,200

2) Inventory

49000/125*25= $ 9800 will be removed as intra entity transfer.

Polar Inc                           $ 4,84,000

Ice Cap Inc                        $ 1,84,000

Less: Intra Co Adj                   -9800

                                        $ 6,58,200

3) Net income

Sales                                                $ 5,04,000

Less: Cost of goods sold               $ -2,76,000

Less: Operating expense                $ -1,47,000

                                                          $   81,000

Non controlling interest share 20%       $ 16,200 (81000*20%)

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