Question

3. Pole Company acquired 80 percent ownership of South Company's voting shares on January 1, 20X8, at underlying book value. The fair value of the noncontrolling interest on that date was equal to 20 percent of the book value of South Company. During 20X8, Pole purchased inventory for $30,000 and sold the full amount to South Company for $50,000. On December 31, 20X8, South's ending inventory included $10,000 of items purchased from Pole. Also in 20X8, South purchased inventory for $80,000 and sold the units to Pole for $100,000. Pole included $30,000 of its purchase from South in ending inventory on December 31, 20X8. Summary income statement data for the two companies revealed the following: (14 points)

	Pole Company					South Company
Sales		$	300,000				$	172,000
Income from Subsidiary			39,000
		$	339,000				$	172,000
Cost of Goods Sold		$	190,000				$	110,000
Other Expenses			45,000					29,000
Total Expenses		$	(235,000	)			$	(139,000	)
Net Income		$	104,000				$	33,000

Required:

1). Compute the amount to be reported as sales in the 20X8 consolidated income statement. (3 points)

2). Compute the amount to be reported as cost of goods sold in the 20X8 consolidated income statement. (3 points)

3). What amount of income will be assigned to the noncontrolling shareholders in the 20X8 consolidated income statement? (3 points)

4). What amount of income will be assigned to the controlling interest in the 20X8 consolidated income statement? (5 points)

Answer 1

Answer		Pole company	South company	Total
	Sales as reported	300,000	172,000	472,000
	Sales by Pole company to South Company	(50,000)	-	(50,000)
	Sale by South company to Pole company	-	(100,000)	(100,000)
1	Total Sales to be reported in consolidated income statement	250,000	72,000	322,000
	Cost of Goods as reported	190,000	110,000	300,000
	Ending finished goods purchased from South company	(30,000)	-	(30,000)
	Ending finished goods purchased from Pole company	-	(10,000)	(10,000)
2	Total COGS to be reported in consolidated income statement	160,000	100,000	260,000
	Computation of profit for South company
	Sales		72,000
	COGS		(100,000)
	Other expenses		(29,000)
	Total expenses		(129,000)
	Total loss		(57,000)
	Sharing of profit / (loss) between controlling and non controlling interest
4	Pole company (Controlling interest - 80%)		(45,600)
3	Non controlling interest (20%)		(11,400)