Question

Pilot Inc. acquired 60% of Surfing Co. on January 1, 2019. At the time of acquisition, total excess fair value was attributed to customer base and amortized at a rate of $15,000 per year. During 2019, Pilot sold goods with a cost of $595,000 for $850,000 to Surfing. Surfing still owned 10% of the goods at the end of the year. In 2020, Pilot sold goods with a cost of $800,000 to Surfing for $1,000,000, and Surfing still owned 28% of the goods at year-end. For 2020, the companies had the following account balances: Pilot Surfing Sales 6,000,000 2,800,000 Cost of goods sold 4,200,000 1,700,000 Investment income Not given Net income Not given 1,100,000 Requirements: (a) Compute the consolidated sales for 2020. Answer: (b) Compute the consolidated cost of goods sold for 2020. Answer: (C) Compute the noncontrolling interest in Surfing's income for 2020. Answer: (d) Assume that the intra-entity sales were upstream (i.e. assume that it was Surfing who sold inventory to Pilot), compute the noncontrolling interest in Surfing's income for 2020. 1 View as Text

Answer 1

Part a. In the books of Pilot Inc. (Parent Company)

Consolidated Sales for year 2020 = $6,000,000 + $2,800,000 - $1,000,000 = $7,800,000

Since Pilot Inc. Sold goods to Surfing at sales price of $1,000,000, it is deducted to get consolidated revenue.

Entry for sales to Surfing company

Surfing A/c......Dr $1,000,000

To Sales A/c $1,000,000

So when Parent company consolidate its income statement, to eliminate of inter-company trading balances, we need to deduct intercompany sales.

Part b. In the books of Pilot Inc. (Parent Company)

Consolidated Cost of Goods for year 2020

$4,200,000 + $1,700,000 - $1,000,000 + $56,000 = $4,956,000

Unrealised profit on inventory:

Since 28% of goods are in inventory of Surfing Company (subsidiary), so need to add back to cost of sales as its return inventory to parent company.

Sales to Surfing = $1,000,000

Less: Cost of Sales = -$ 800,000

Profit on it $ 200,000

Provision for Unrealised Profit = $200,000 x 28% = $56,000

Part c.

Noncontrolling interest in Surfing's income for 2020

Since Pilot Inc. acquired 60% of Surfing Co's Shareholding, so Noncontrolling would be 40%

Non-controlling Interest =

NCI share of Surfing's profit (income) = 40% x $1,100,000 = $440,000

Part d.

Revenue of Surfing = $1,800,000 (2,800,000 - 1,000,000)...refer working note

- less Cost of sales = $ 9,00,000 (1700,000 - 800,000)

Profti or income = $ 900,000

40% of 900,000 = $360,000

Working note:

ournal entry for elimination

Sales 1,000.000

To Cost of Sles 8,00,000

To Inventory 200,000