In preparing the consolidation worksheet for Bolger Corporation and its 60 perce
ID: 2331195 • Letter: I
Question
In preparing the consolidation worksheet for Bolger Corporation and its 60 percent–owned subsidiary, Feldman Company, the following consolidation entries were proposed by Bolger's bookkeeper:
Bolger's bookkeeper recently graduated from Oddball University, and although the dollar amounts recorded are correct, he had some confusion in determining which accounts needed adjustment. All intercorporate sales in 20X5 were from Feldman to Bolger, and Feldman sells inventory at cost plus 40 percent of cost. Bolger uses the fully adjusted equity method in accounting for its ownership in Feldman.
Required:
a.
What percentage of the intercompany inventory transfer was resold prior to the end of 20X5? (Do not round your intermediate calculations. Round your final answer to nearest whole percentage.)
b.
Prepare the appropriate consolidation entries needed at December 31, 20X5, to prepare consolidated financial statements. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Do not round intermediate calculations.)
*Record the entry to eliminate the beginning inventory profit
*Record the entry to eliminate the intercompany inventory sale.
Worksheet Entries Debit Credit Cash 92,000 Accounts Payable 92,000 To consolidate the unpaid balance for intercorporate inventory sales in 20X5. Cost of Goods Sold 16,200 Income from Subsidiary 16,200 To consolidate unrealized inventory profits at December 31, 20X5. Income from Subsidiary 189,000 Sales 189,000 To consolidate intercompany sales for 20X5.Explanation / Answer
a. Calculation of percentage of intercompan inventory resold before year end:
Hence percentage of intercompany inventory resold = 70%
b. Worksheet entries for consolidation:
Intercompany sales 189000 Sale value = 1.4 times cost 189000/1.4 = cost of goods sold Cost of goods sold 135000 Profit on sale of goods ( sale-cost) 54000 Unrealised inventory profits at year end 16200 % Unrealised inventory profits at year end 16200/54000 *100 30% Inventory resold 100%-30% 70%