Upstream and Downstream Sales
Pace Company owns 85% of the outstanding common stock of Sand Company and all the outstanding common stock of Star Company. During 2012, the affiliates engaged in intercompany sales as follows:
Sales of Merchandise
Pace to Sand $ 40,000
Sand to Pace 60,000
Sand to Star 75,000
Star to Pace 50,000
$225,000
The following amounts of intercompany profits were included in the December 31,
2011, and December 31, 2012, inventories of the individual companies:
Intercompany Profit in
December 31, 2011, Inventory of
Selling Company Pace Sand Star Total
Pace Company $7,000 $ 7,000
Sand Company $ 5,000 $3,000 8,000
Star Company 8,000 8,000
Total $13,000 $7,000 $3,000 $23,000
Intercompany Profit in
December 31, 2012, Inventory of
Selling Company Pace Sand Star Total
Pace Company $2,000 $ 2,000
Sand Company $ 6,000 $9,000 15,000
Star Company 4,000 4,000
Total $10,000 $2,000 $9,000 $21,000
Income from each company’s independent operations (including sales to affiliates) for the year ended December 31, 2012, is presented here:
Pace Company $200,000
Sand Company 150,000
Star Company 125,000
Required:
A. Prepare in general journal form the work paper entries necessary to eliminate intercompany sales and intercompany profit in the December 31, 2012, consolidated financial statements work paper.
B. Calculate the balance to be reported in the consolidated income statement for the following line items:
Consolidated income
Non controlling interest in consolidated income
Controlling interest in consolidated income