1)Pruitt Company owns 80% of Stoney Company’s common stock. During 2017 , Stoney
ID: 2458814 • Letter: 1
Question
1)Pruitt Company owns 80% of Stoney Company’s common stock. During 2017, Stoney sold $400,000 of merchandise to Pruitt. At December 31, 2017, one-fourth of the merchandise remained in Pruitt’s inventory. In 2017, gross profit percentages were 25% for Pruitt and 30% for Stoney. The amount of unrealized intercompany profit that should be eliminated in the consolidated statements is:
a) $80,000.
b) $24,000.
c) $30,000.
d) $25,000.
2) P Company owns an 80% interest in S Company. During 2017, S sells merchandise to P for $200,000 at a profit of $40,000. On December 31, 2017, 50% of this merchandise is included in P’s inventory. Income statements for P and S are summarized below:
P
S
Sales
$1,200,000
$600,000
Cost of Sales
(600,000)
(400,000)
Operating Expenses
(300,000)
(80,000)
Net Income (2017)
$300,000
$120,000
Controlling interest in consolidated net income for 2017 is:
a) $300,000.
b) $380,000.
c) $396,000.
d) $420,000.
And how much is the non controlling interest for 2017?
Please show me the work so I can learn From...don't just post the answer. Thanks
P
S
Sales
$1,200,000
$600,000
Cost of Sales
(600,000)
(400,000)
Operating Expenses
(300,000)
(80,000)
Net Income (2017)
$300,000
$120,000
Explanation / Answer
Answer 1
As it is a upstream transaction as merchandise is sold by subsidary to holding so , unrealized profit is $30000 ie inventory remains 100000 * 30% => $30000
Answer 2
80% of s's incoem ie 120000*80% => 96000
so total income => $300000 + 96000 => $396000
and upstream tranaction of stock => 20000*80%=> $16000
So Controlling Interest => $ 396000 - $16000 => $380000
Option b => $ 380000
Non controlling Interest is => $ 20000
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