Pisa Company acquired 75% of Siena Company on January 1, 2003 at book value. Dur
ID: 2524563 • Letter: P
Question
Pisa Company acquired 75% of Siena Company on January 1, 2003 at book value. During 2003, Siena purchased inventory for $35,000 and sold it to Pisa for $50,000. Of this amount, Pisa reported $20,000 in ending inventory in 2003 and later sold it in 2004. In 2004, Pisa sold inventory it had purchased for $40,000 to Siena for $60,000. Siena sold $45,000 of this inventory in 2004. In 2004, Pisa reported stand-alone income of $550,000 and Siena reported total net income of $118,000.
a. Prepare the consolidation entries that related to intercompany sale of inventory for 2003.
b. Prepare the consolidation entries that related to intercompany sale of inventory for 2004.
c. Calculate consolidated net income AND income assigned to controlling shareholders in 2004.
Explanation / Answer
All amounts are in $
Ans a. Entries of 2003
Intercompany Account Receivable Dr 50000
To Intercompany Sales Cr 50000
Intercompany Cost of Sales Dr 35000
To Inventory Cr 35000
Ans b. Entries for 2004 are
Intercompany Account Receivable Dr 60000
To Intercompany Sales Cr 60000
Intercompany Cost of Sales Dr 40000
To Inventory Cr 40000
Ans c. Net Consolidated Income of 2004 is
Pisa income = 550,000
Less: Intercompany profit = 5000
Net income of Pisa = 545,000
Siena Income in 2004 = 118,000
Total Consolidated income = 663,000
Income assigned to controlling shareholders is 75% of 118,000 = 88,500