Chapter 06 – Intercompany Inventory Transactions
P6–24 (continued)
Adjustment to Basic Consolidation Entry
NCI
Priority
Net Income
9,000
81,000
+Reverse GP deferral (down)
8,000
+Reverse GP deferral (up)
600
5,400
– Gross profit deferral (down)
(2,000)
– Gross profit deferral (up)
(1,400)
(12,600)
Income to be eliminated
8,200
79,800
———————————————————-—————————
Ending Book Value
143,000
1,287,000
+Reverse GP deferral (down)
8,000
+Reverse GP deferral (up)
600
5,400
– Gross profit deferral (down)
(2,000)
– Gross profit deferral (up)
(1,400)
(12,600)
Adjusted Book Value
142,200
1,285,800
Basic Consolidation Entry
Common Stock
400,000
← Common stock balance
Additional Paid-in Capital
200,000
← Beginning balance in APIC
Retained Earnings
790,000
← Beginning balance in RE
Accumulated OCI
10,000
← Beginning balance in Acc. OCI
Income from Tall Corp.
79,800
← PC.’s % of NI with adjustment
NCI in NI of Tall Corp.
8,200
← NCI share of NI with adjustment
Dividends
Investment in Tall Corp.
60,000
1,285,800
← Dividends declared by subsidiary
← Net book value with adjustment
NCI in NA of Tall Corp.
142,200
← NCI share of BV with adjustment
Other Comprehensive Income Entry:
OCI from Tall Corp.
18,000
OCI to the NCI
2,000
Investment in Tall Corp.
18,000
NCI in NA of Tall Corp.
2,000
Reversal of last year’s deferral:
Investment in Tall Corp.
13,400
NCI in NA of Tall Corp.
600
Cost of Goods Sold
14,000
Deferral of this year’s unrealized profits on inventory transfers
Sales
126,000
Cost of Goods Sold
110,000
Inventory
16,000
Chapter 06 – Intercompany Inventory Transactions
Gross Profit %
16.67%
Chapter 06 – Intercompany Inventory Transactions
a.
Consolidation entries:
Investment in Slinky
20,000
Cost of goods sold
20,000
Eliminate beginning inventory profit of Proud Company.
Investment in Slinky
12,600
NCI in NA of Slinky
8,400
Cost of goods sold
15,000
Inventory
6,000
Eliminate beginning inventory profit of Slinky Company.
Sales
60,000
Cost of goods sold
58,000
Inventory
2,000
Eliminate intercompany sale of inventory by Proud Company.
Sales
240,000
Cost of goods sold
210,000
Inventory
30,000
Eliminate intercompany sale of inventory by Slinky Company.
The basic entry (not shown) would be adjusted by 38,000 of deferred
profit and 35,000 to reverse the prior year gross profit deferral and
complete the elimination process.
b.
Computation of cost of goods sold for consolidated entity:
Inventory produced by Proud in 20X5
($100,000 x 0.40)
$ 40,000
Inventory produced by Slinky in 20X5
($70,000 x 0.50)
35,000
Inventory produced by Proud in 20X6
($40,000 x 0.90)
36,000
Inventory produced by Slinky in 20X6
($200,000 x 0.25)
50,000
Cost of goods sold reported in
consolidated income statement
$161,000
