P acquired 80% of S on January 1, 2011 for $120,000. The market value of non-controlling interest was $30,000 on that date. The There a few intercompany transactions between P and S during 2011. Sales between them were made on the same term as those made to third parties. Especially, S sold an equipment to P for $40,000 on January 1, 2011, which is depreciated over 4 years by P. S paid $100,000 for the equipment and had been depreciating the equipment $8,000 per year.
On December 31, 2011, P sold all the inventory purchased from S, but S still hold the inventory purchased from P. The following information is from the condensed 2011 individual income statement of P and S. Note P's income statement does not reflect its ownership of S yet. P S Sales from P to S $150,000 $ - Sales from S to P - 70,000 Sales to others 300,000 200,000 450,000 270,000 COGS Acquired by P from S - 50,000 Acquired by S from P 80,000 - Acquired from others 150,000 100,000 230,000 150,000 P S Gross Profit 220,000 120,000 Depreciation 40,000 20,000 Other expenses 100,000 50,000 Income from operations 80,000 50,000 Gain from selling equipment 20,000 Income before tax $80,000 $70,000
Question 1: On January 1, 2011, the partial balance sheet of S shows following information. Equity Common Stock $50,000 Retained Earnings 50,000 Total equity $100,000 The FV of S's net asset was $130,000, and FVs of following items differed from BVs BV FV Land $50,000 $90,000 Bond payable, net 120,000 130,000 How much is the differential? (Note that bond payable is liability) Question #2: How much is goodwill? Should the goodwill be multiplied by P's ownership percentage? What is the reason? Question #3: Make journal entries for the acquisition. Question #4: How much income from subsidiary will be included in P's income statement? Question #5: How much is the sales on the consolidated income statement?
Question #6: Let's consider downstream inventory transfer first. What are the journal entries of P and S during the year? Note that S still holds the inventory purchased from P. Question #7: Continued from Q#6 above, what is the elimination entry for downstream inventory transfer? Question #8: Let's consider upstream inventory transfer now. P sold the inventory purchased from S to Third Party Company for $100,000. What are the journal entries of P and S during the year?
Question #9: Continued from Q#8 above, what is the elimination entry for upstream inventory sale? Question #10: What are two companies' journal entries for the intercompany equipment transfer? Question #11: Continued from Q#11 above, what are the elimination entries? Question #12: In 2011, P and S declared and paid $30,000 and $20,000 dividends respectively. Make journal entries for income, dividend, no controlling interest, and investment in subsidiary. Also discuss wether the upstream inventory transfer should affect noncontrolling interest calculation and why. Question #13: Prepare consolidated income statement for 2011.