Accounting Advance Ex 6-1

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Exercise 6-1

Part A(1)Sales2,700,000
Purchases (Cost of Goods Sold) 2,700,000
To eliminate intercompany sales of 2011

(2)12/31 Inventory-Income Statement (Cost of Goods Sold) 487,500
12/31 Inventory (Balance Sheet) 487,500
To eliminate unrealized intercompany profit in inventory

Exercise 6-2

Reported Net Income- S Company $ 525,000
Noncontrolling Interest Percentage 0.20
Noncontrolling Interest in Net Income $ 105,000

Exercise 6-3

2011
Reported net income $ 30,000
Unrealized intercompany profit included therein = $5,200; $5,200 0.25 = (1,300)
Profit included in consolidated income 28,700
Percentage interest 0.10
Noncontrolling interest in consolidated income $ 2,870 2012 (Rounded to nearest dollar)
Reported net income$ 35,000
Intercompany profit included in beginning inventory, now realized1,300
Unrealized intercompany profit included therein = $6,250; $6,250 0.25 =(1,563)
Profit included in consolidated income 34,737
Percentage interest 0.10
Noncontrolling interest in consolidated income $ 3,474

Exercise 6-4
The $600,000 that could not be assigned to specific assets and liabilities is assumed to represent goodwill (the unidentifiable intangible asset), which is not amortized under current GAAP but is reviewed periodically for impairment. In contrast, identifiable intangible assets would be amortized if they have a definite life but not if the life is indefinite in duration. Thus, only if the $600,000 pertained to an identifiable intangible asset with a finite life would amortization be required. We assume that is not the case here.

2011
Pearce Company's net income from its independent operations $1,500,000
Amount of income not realized in transactions with third parties ($90,000 – ) (18,000)
Pearce Company's income from its independent operations that has been realized
in transactions with third parties 1,482,000
Pearce's share of Searl Company adjusted income that has been realized in transactions
with third parties ($412,500* 0.80) 330,000*
Controlling interest in consolidated net income for 2011 $1,812,000

*[$600,000 – ($75,000 + $112,500)] x 0.80 = 330,000,
where $75,000 = $375,000/5
Alternatively,
Controlling Interest in Consolidated Income |  |
| | Net income internally generated by Pearce Company| $1,500,000 | | |  | |
Unrealized profit on downstream| | Realized profit (downstream sales) from begin. inventory| | sales to Searl Company (ending| |  | |
Inventory) ($90,000 – $90,000/1.25)| 18,000 | Pearce Company's percentage of Searl Company's income | | | | realized from third parties, .80($412,500)| 330,000 | |  |  |  |

| | Controlling interest in Consolidated Income| $1,812,000 |

2012
Pearce Company's net income from its independent operations $1,800,000
Less profit included therein that has not been realized in transactions with third parties
($105,000 – ($105,000/1.25)) (21,000)
Plus profit realized in 2012 ($90,000 – ($90,000/1.25)) 18,000
Pearce Company's income from its independent operations that has been realized
in transactions with third parties 1,797,000
Pearce's share of Searl Company adjusted income that has been realized in transactions
with third parties ($675,0000 .80) 540,000
Controlling interest in consolidated net income for 2012 $2,337,000

*[$750,000 – $75,000] x 0.80 = $540,000,
where $75,000 = $375,000/5

Exercise 6-4 (continued)
Alternatively,
Controlling Interest in Consolidated Income |  |
| | Net income internally generated by Pearce Company| $1,800,000 | | |  | |
Unrealized...
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