Question

Parson Company acquired an 80 percent interest in Syber Company on January 1, 2017. Any portion...

Parson Company acquired an 80 percent interest in Syber Company on January 1, 2017. Any portion of Syber's business fair value in excess of its corresponding book value was assigned to trademarks. This intangible asset has subsequently undergone annual amortization based on a 15-year life. Over the past two years, regular intra-entity inventory sales transpired between the two companies. No payment has yet been made on the latest transfer. All dividends are paid in the same period as declared.

The individual financial statements for the two companies as well as consolidated totals for 2018 follow:

Parson
Company
Syber
Company
Consolidated
Totals
Sales $ (900,000 ) $ (700,000 ) $ (1,460,000 )
Cost of goods sold 550,000 450,000 870,000
Operating expenses 120,000 130,000 253,000
Income of Syber (89,800 ) 0 0
Separate company net income $ (319,800 ) $ (120,000 )
Consolidated net income $ (337,000 )
Net income attributable to noncontrolling interest 17,200
Net income attributable to Parson Company $ (319,800 )
Retained earnings, 1/1/18 $ (626,600 ) $ (310,000 ) $ (626,600 )
Net income (above) (319,800 ) (120,000 ) (319,800 )
Dividends declared 80,000 40,000 80,000
Retained earnings, 12/31/18 $ (866,400 ) $ (390,000 ) $ (866,400 )
Cash and receivables $ 398,000 $ 90,000 $ 464,000
Inventory 200,000 180,000 365,500
Investment in Syber Company 398,400 0 0
Land, buildings, and equipment 400,000 290,000 690,000
Trademarks 0 0 32,500
Total assets $ 1,396,400 $ 560,000 $ 1,552,000
Liabilities $ (320,000 ) $ (80,000 ) $ (378,900 )
Common stock (170,000 ) (90,000 ) (170,000 )
Additional paid-in capital (40,000 ) 0 (40,000 )
Noncontrolling interest in Syber 0 0 (96,700 )
Retained earnings (above) (866,400 ) (390,000 ) (866,400 )
Total liabilities and equities $ (1,396,400 ) $ (560,000 ) $ (1,552,000 )

What method does Parson use to account for its investment in Syber?

What is the balance of the intra-entity inventory gross profit deferred at the end of the current period?

What amount was originally allocated to the trademarks?

What is the amount of the current year intra-entity inventory sales?

Were the intra-entity inventory sales made upstream or downstream?

What is the balance of the intra-entity liability at the end of the current year?

What amount of intra-entity gross profit was deferred from the preceding period and recognized in the current period?

What was the ending Noncontrolling Interest in Syber Company computed?

With a tax rate of 40 percent, what income tax journal entry is recorded if the companies prepare a consolidated tax return?

With a tax rate of 40 percent, what income tax journal entry is recorded if these two companies prepare separate tax returns?

Homework Answers

Answer #1

1. Parson used Equity Method to account for its investment in Syber.

2. Balance of Intra-entity gross profit deferred at the end of the current period:

   $1,460,000 - $870,000 = $590,000

3. What amount was originally allocated to the trademarks:

    Income of Syber in the year = $120,000

    Parson's share = $120,000 x 80% = $96,000

    Income of Syber included in Income statement of Parson = $ 89,800

    Amortization of Trademarks = $96,000 - $89,800 = $6,200

    Trademarks initially recognized = $6,200 x 15years = $93,000

4. Current year intra-entity inventory sales:

$1,460,000

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Placid Lake Corporation acquired 80 percent of the outstanding voting stock of Scenic, Inc., on January...
Placid Lake Corporation acquired 80 percent of the outstanding voting stock of Scenic, Inc., on January 1, 2014, when Scenic had a net book value of $400,000. Any excess fair value was assigned to intangible assets and amortized at a rate of $5,000 per year. Placid Lake’s 2015 net income before consideration of its relationship with Scenic (and before adjustments for intra-entity sales) was $300,000. Scenic reported net income of $110,000. Placid Lake declared $100,000 in dividends during this period;...
Placid Lake Corporation acquired 70 percent of the outstanding voting stock of Scenic, Inc., on January...
Placid Lake Corporation acquired 70 percent of the outstanding voting stock of Scenic, Inc., on January 1, 2017, when Scenic had a net book value of $590,000. Any excess fair value was assigned to intangible assets and amortized at a rate of $7,000 per year. Placid Lake's 2018 net income before consideration of its relationship with Scenic (and before adjustments for intra-entity sales) was $490,000. Scenic reported net income of $300,000. Placid Lake declared $180,000 in dividends during this period;...
On January 1, 2012, Aspen Company acquired 80 percent of Birch Company’s outstanding voting stock for...
On January 1, 2012, Aspen Company acquired 80 percent of Birch Company’s outstanding voting stock for $392,000. Birch reported a $355,000 book value and the fair value of the noncontrolling interest was $98,000 on that date. Also, on January 1, 2013, Birch acquired 80 percent of Cedar Company for $228,000 when Cedar had a $204,000 book value and the 20 percent noncontrolling interest was valued at $57,000. In each acquisition, the subsidiary’s excess acquisition-date fair over book value was assigned...
On January 1, 2020, French Company acquired 60 percent of K-Tech Company for $300,000 when K-Tech’s...
On January 1, 2020, French Company acquired 60 percent of K-Tech Company for $300,000 when K-Tech’s book value was $400,000. The fair value of the newly comprised 40 percent noncontrolling interest was assessed at $200,000. At the acquisition date, K-Tech's trademark (10-year remaining life) was undervalued in its financial records by $60,000. Also, patented technology (5-year remaining life) was undervalued by $40,000. In 2020, K-Tech reports $30,000 net income and declares no dividends. At the end of 2021, the two...
Mighty Company purchased a 60 percent interest in Lowly Company on January 1, 2017, for $528,300...
Mighty Company purchased a 60 percent interest in Lowly Company on January 1, 2017, for $528,300 in cash. Lowly's book value at that date was reported as $777,500 and the fair value of the noncontrolling interest was assessed at $352,200. Any excess acquisition-date fair value over Lowly's book value is assigned to trademarks to be amortized over 20 years. Subsequently, on January 1, 2018, Lowly acquired a 20 percent interest in Mighty. The price of $360,000 was equivalent to 20...
On July 1, 2018, Truman Company acquired a 70 percent interest in Atlanta Company in exchange...
On July 1, 2018, Truman Company acquired a 70 percent interest in Atlanta Company in exchange for consideration of $788,900 in cash and equity securities. The remaining 30 percent of Atlanta’s shares traded closely near an average price that totaled $338,100 both before and after Truman’s acquisition. In reviewing its acquisition, Truman assigned a $129,500 fair value to a patent recently developed by Atlanta, even though it was not recorded within the financial records of the subsidiary. This patent is...
X Company acquired an 80% stake in y Company on January 1, 2018, when the book...
X Company acquired an 80% stake in y Company on January 1, 2018, when the book value of y Company’s stockholder equity accounts was $400,000. All of the $250,000 excess fair value over book value was allocated to goodwill. There were no intra-entity transactions during the year, and y Company reported net income on its books for $160,000 for 2018. y Company also declared dividends of $40,000 in 2018. What is the noncontrolling interest ending balance in the December 31,...
On January 1, 2017, Doone Corporation acquired 80 percent of the outstanding voting stock of Rockne...
On January 1, 2017, Doone Corporation acquired 80 percent of the outstanding voting stock of Rockne Company for $784,000 consideration. At the acquisition date, the fair value of the 20 percent noncontrolling interest was $196,000 and Rockne's assets and liabilities had a collective net fair value of $980,000. Doone uses the equity method in its internal records to account for its investment in Rockne. Rockne reports net income of $380,000 in 2018. Since being acquired, Rockne has regularly supplied inventory...
. Pole Company acquired 80 percent ownership of South Company's voting shares on January 1, 20X8,...
. Pole Company acquired 80 percent ownership of South Company's voting shares on January 1, 20X8, at underlying book value. The fair value of the noncontrolling interest on that date was equal to 20 percent of the book value of South Company. During 20X8, Pole purchased inventory for $30,000 and sold the full amount to South Company for $50,000. On December 31, 20X8, South's ending inventory included $10,000 of items purchased from Pole. Also in 20X8, South purchased inventory for...
Arnold Corporation holds 70 percent of Belvista, which, in turn, owns 70 percent of Stang. Separate...
Arnold Corporation holds 70 percent of Belvista, which, in turn, owns 70 percent of Stang. Separate operating income figures (excluding investment income) and intra-entity upstream gains (on assets remaining within the consolidated group) included in the income for the current year follow: Arnold Belvista Stang Separate operating income $625,000 $305,000 $240,000 Intra-entity gains –0– 18,000 50,000 What is the amount of consolidated net income attributable to the noncontrolling interests? $143,100 $163,500 $183,000 $213,900
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT