Placid lake view
11aug1975 (Not rated)
(Not rated)
| Placid Lake Corporation acquired 70 percent of the outstanding voting stock of Scenic, Inc., on January 1, 2014, when Scenic had a net book value of $650,000. Any excess fair value was assigned to intangible assets and amortized at a rate of $8,000 per year. | |
| Placid Lake’s 2015 net income before consideration of its relationship with Scenic (and before adjustments for intra-entity sales) was $550,000. Scenic reported net income of $360,000. Placid Lake declared $180,000 in dividends during this period; Scenic paid $65,000. At the end of 2015, selected figures from the two companies’ balance sheets were as follows: | |
| Placid Lake | |
| Inventory | $390,000.00 |
| Land | $850,000.00 |
| Equipment (net) | $650,000.00 |
| During 2014, intra-entity sales of $200,000 (original cost of $92,000) were made. Only 10 percent of this inventory was still held within the consolidated entity at the end of 2014. In 2015, $340,000 in intra-entity sales were made with an original cost of $84,000. Of this merchandise, 20 percent had not been resold to outside parties by the end of the year. | |
| Each of the following questions should be considered as an independent situation for the year 2015. | |
| a. What is consolidated net income for Placid Lake and its subsidiary? | |
| b. If the intra-entity sales were upstream, how would consolidated net income be allocated to the controlling and noncontrolling interest? | |
| c. If the intra-entity sales were downstream, how would consolidated net income be allocated to the controlling and noncontrolling interest? | |
| d. What is the consolidated balance in the ending Inventory account? | |
| e. Assume that no intra-entity inventory sales occurred between Placid Lake and Scenic. Instead, in 2014, Scenic sold land costing $55,000 to Placid Lake for $100,000. On the 2015 consolidated balance sheet, what value should be reported for land? | |
| f. Assume that no intra-entity inventory or land sales occurred between Placid Lake and Scenic. Instead, on January 1, 2014, Scenic sold equipment (that originally cost $180,000 but had a $85,000 book value on that date) to Placid Lake for $120,000. At the time of sale, the equipment had a remaining useful life of five years. What worksheet entries are made for a December 31, 2015, consolidation of these two companies to eliminate the impact of the intra-entity transfer? | |
| g. For 2015, what is the noncontrolling interest’s share of Scenic’s net income? |
11 years ago
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placid_lake_corporation.xlsx
