Task: Intercompany Transfers
Question: Asphalt acquired 70 percent of Broadway on June 11, 1993. Based on the purchase price, an intangible of $300,000 was recognized and is being amortized at the rate of $10,000 per year. The 2004 financial statements are as follows:
Asphalt Broadway
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 800,000 $ 600,000
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . (535,000) (400,000)
Operating expenses . . . . . . . . . . . . . . . . . . . . . . . (100,000) (100,000)
Dividend income . . . . . . . . . . . . . . . . . . . . . . . . . 35,000 -0-
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 200,000 $ 100,000
Retained earnings, 1/1/04 . . . . . . . . . . . . . . . . . . $1,300,000 $ 850,000
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200,000 100,000
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . (100,000) (50,000)
Retained earnings, 12/31/04 . . . . . . . . . . . . . . . . $1,400,000 $ 900,000
Cash and receivables . . . . . . . . . . . . . . . . . . . . . . $ 400,000 $ 300,000
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 298,000 700,000
Investment in Broadway . . . . . . . . . . . . . . . . . . . . 902,000 -0-
Fixed assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,000,000 600,000
Accumulated depreciation . . . . . . . . . . . . . . . . . . (300,000) (200,000)
Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,300,000 $1,400,000
Asphalt Broadway
Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 600,000 $ 400,000
Common stock . . . . . . . . . . . . . . . . . . . . . . . . . . 300,000 100,000
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . 1,400,000 900,000
Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,300,000 $1,400,000
Asphalt sells inventory costing $72,000 to Broadway during 2003 for $120,000. At year’s end, 30 percent is left. Asphalt sells inventory costing $200,000 to Broadway during 2004 for $250,000. At year’s end, 20 percent is left. Under these circumstances, determine the consolidated balances for the following accounts:
Sales
Cost of Goods Sold
Operating Expenses
Dividend Income
Noncontrolling Interest in Consolidated Income
Inventory
Noncontrolling Interest in Subsidiary, 12/31/04
Assuming that the intercompany transfers were all made from Broadway to Asphalt.