P6-1 Consolidated income statement (incomplete equity method, downstream saies)
ID: 2513409 • Letter: P
Question
P6-1 Consolidated income statement (incomplete equity method, downstream saies) separate income statements of Pea Corporation and its 90 percent-owned subsidiary, Sea Corpora- in, for 2011 are summarized as follows (in thousands): Pea . Sea $600 Sales Income from Sea Gain on equipment Cost of saies Other expenses $1,000 90 40 (600) (400) S 330 100 Net income nvestigation reveals that the effects of certain intercompany transactions are not included in Pea's come from Sea. Information about those intercompany transactions follows es-Sales of inventory items from Pea to Sea are summarized as follows: 2011 2010 $100,000 60,000 $150,000 Intercompany sales Cost of intercompany sales Percentage unsold at year-end 90,000 40% 50% 2. Plant assets-Pea sold equipment with a book value of $60,000 to Sea for $100,000 o 1, 2011. Sea depreciates the equipment on a straight-line basis (ao scrap) over four-year period. REQUIRED 1. Determine the correct amount of Pea's income from Sea for 2011. Prepare a consolidated income statement for Pea Corporation and Subsidiary for 2011.Explanation / Answer
1) Determine the correct amount of Pea's income from Sea for 2011?
Solution: $56,000
Working:
Income from Sea
Equity in Sea Income (100,000 * 90%)
$90,000
Plus :
Deferred inventory profit 2010 (40,000 * 50%)
$20,000
Minus :
unrealized inventory profit 2011 (60,000 * 40%)
$24,000
Intercompany profit on equipment (100,000 - 60,000)
$40,000
Plus :
Depreciation expense (40,000/4)
$10,000
Income From Sea
$56,000
2) Consolidated Income Statement:
Sales(1,000,000+600,000-150,000)
$1,450,000
Cost of sales
Combined( 600,000 + 400,000)
$1,000,000
Intercompany
$150,000
Ending inventory profit(60,000*40%)
$24,000
Beginning inventory profit(40,000*50%)
$20,000
$854,000
Gross profit
$596,000
Other expense
Combined(200.000+100.000)
$300,000
Depreciation expense
$10,000
$290,000
Consolidated net income
$306,000
Minus : NCI
$10,000
Controlling interest share
$296,000
Income from Sea
Equity in Sea Income (100,000 * 90%)
$90,000
Plus :
Deferred inventory profit 2010 (40,000 * 50%)
$20,000
Minus :
unrealized inventory profit 2011 (60,000 * 40%)
$24,000
Intercompany profit on equipment (100,000 - 60,000)
$40,000
Plus :
Depreciation expense (40,000/4)
$10,000
Income From Sea
$56,000
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