Carroll Company sells all its output at 25 percent above cost. Pacific Corporati
ID: 2444723 • Letter: C
Question
Carroll Company sells all its output at 25 percent above cost. Pacific Corporation purchases all its inventory from Carroll. Selected information on the operations of the companies over the past three years is as follows:
Pacific acquired 70 percent of the ownership of Carroll on January 1, 20X1, at underlying book value.
Compute consolidated net income and income assigned to the controlling interest for 20X2, 20X3, and 20X4.
Carroll Company sells all its output at 25 percent above cost. Pacific Corporation purchases all its inventory from Carroll. Selected information on the operations of the companies over the past three years is as follows:
Explanation / Answer
PROFIT MADE BY CARROLL COMPANY=25% ON COST=20% ON SALES
CALCULATION OF NET INCOME OF CARROLL COMPANY AFTER DEDUCTING UNREALISED PROFIT
SALES($)
(1)
UNREALISED PROFIT($)
(2)=(1)*20%
NET INCOME($)
(3)
INCOME NET OF UNREALISED PROFIT($)
(4)=(3)-(2)
CALCULATION OF NET INCOME OF PACIFIC COMPANY AFTER DEDUCTING UNREALISED PROFIT
INVENTORY($)
(1)
UNREALISED PROFIT($)
(2)=(1)*20%
OPERATING INCOME($)
(3)
OPERATING INCOME NET OF UNREALISED PROFIT($)
(4)=(3)-(2)
CALCULATION OF CONSOLIDATED NET INCOME OF PACIFIC COMPANY AND INCOME ASSIGNED TO CONTROLLING INTEREST
INCOME NET OF UNREALISED PROFIT($)
(1)
SHARE IN NET INCOME OF CARROLL COMPANY @ 70%($)
(INCOME ASSIGNED TO CONTOLLING INTEREST)
(2)
CONSOLIDATED INCOME($)
(3)=(1)+(2)
YEARSALES($)
(1)
UNREALISED PROFIT($)
(2)=(1)*20%
NET INCOME($)
(3)
INCOME NET OF UNREALISED PROFIT($)
(4)=(3)-(2)
20X2 2,05,000 41,000 1,15,000 74,000 20X3 1,80,000 36,000 1,05,000 69,000 20X4 2,73,000 54,600 1,75,000 1,20,400