Question

Holiday Bakery owns 70 percent of Farmco Products Company’s stock. On January 1, 20X9, inventory reported by Holiday included 23,000 bags of flour purchased from Farmco at $21 per bag. By December 31, 20X9, all the beginning inventory purchased from Farmco Products had been baked into products and sold to customers by Holiday. There were no transactions between Holiday and Farmco during 20X9. Both Holiday Bakery and Farmco Products price their sales at cost plus 50 percent markup for profit. Holiday reported income from its baking operations of $315,000, and Farmco reported net income of $265,000 for 20X9.

Required:

a. Compute the amount reported as cost of goods sold in the 20X9 consolidated income statement for the flour purchased from Farmco in 20X8. (Do not round intermediate calculations.)

b. Prepare the consolidation entry or entries required to remove the effects of the unrealized profit in beginning inventory in preparing the consolidation worksheet as of December 31, 20X9. (Do not round intermediate calculations.)

c. Compute the amounts reported as consolidated net income and income assigned to the controlling interest in the 20X9 consolidated income statement. (Do not round intermediate calculations.)

Answer 1

Selling Price per bag by Farmco = $21

Cost per bag for Farmco = $21 150%

Cost per bag = $14.

a. Amount reported as cost of goods sold in the 20X9 consolidated income statement for the flour purchased from Farmco in 20X8 is:

Cost of goods sold = 23,000 bags x $14 = $322,000

Cost of goods sold for the flour purchased from Farmco in 20X8 in consolidated income statement would be $322,000

b. Consolidation entry required to remove the effects of the unrealized profit in beginning inventory in preparing the consolidation worksheet as of December 31, 20X9 is:

Out of the entire amount of Cost of Goods Sold, 70% share is of Holiday Bakery and 30% is of Noncontrolling or minority interest.

c. The amounts reported as consolidated net income and income assigned to the controlling interest in the 20X9 consolidated income statement is as follows:

Consolidated Net Income is $631,200