Question

Placid Lake Corporation acquired 90 percent of the outstanding voting stock of Scenic, Inc., on January 1, 2020, when Scenic had a net book value of $490,000. Any excess fair value was assigned to Intangible assets and amortized at a rate of $7,000 per year. Placid Lake's 2021 net Income before consideration of its relationship with Scenic (and before adjustments for intra-entity sales) was $390,000. Scenic reported net Income of $200,000. Placid Lake declared $190,000 in dividends during this period; Scenic paid $49,000. At the end of 2021, selected figures from the wo companies' balance sheets were as follows: Inventory Land Equipment (net) Placid Lake $ 230, eee 690,000 499, eee Scenic $ 99, eee 290,000 390, see During 2020, Intra-entity sales of $120,000 (original cost of $60,000) were made. Only 30 percent of this Inventory was still held within the consolidated entity at the end of 2020. In 2021, $180,000 in Intra-entity sales were made with an original cost of $68,000. Of this merchandise, 40 percent had not been resold to outside parties by the end of the year. Each of the following questions should be considered as an independent situation for the year 2021. a. What is consolidated net Income for Placid Lake and its subsidiary? b. If the Intra-entity sales were upstream, how would consolidated net Income be allocated to the controlling and noncontrolling Interest? c. If the Intra-entity sales were downstream, how would consolidated net Income be allocated to the controlling and noncontrolling Interest? d. What is the consolidated balance in the ending Inventory account? e. Assume that no Intra-entity Inventory sales occurred between Placid Lake and Scenic. Instead, in 2020, Scenic sold land costing $39,000 to Placid Lake for $68,000. On the 2021 consolidated balance sheet, what value should be reported for land? f-1. Assume that no Intra-entity Inventory or land sales occurred between Placid Lake and Scenic. Instead, on January 1, 2020, Scenic sold equipment (that originally cost $190,000 but had a $69,000 book value on that date) to Placid Lake for $98,000. At the time of sale, the equipment had a remaining useful life of five years. What worksheet entries are made for a December 31, 2021, consolidation of these two companies to eliminate the Impact of the Intra-entity transfer? f-2. Assume that no Intra-entity Inventory or land sales occurred between Placid Lake and Scenic. Instead, on January 1, 2020, Scenic sold equipment that originally cost $190,000 but had a $69,000 book value on that date) to Placid Lake for $98,000. At the time of sale, the equipment had a remaining useful life of five years. For 2021, what is the noncontrolling interest's share of Scenic's net Income? Complete this question by entering your answers in the tabs below. Req A Reg B and c Reg D and E Req F1 Reg F2 What is consolidated net income for Placid Lake and its subsidiary? Consolidated net income < Req A Req B and C>

Answer 1

Solution ;

1. 2020 Unrealized gross profit to be recognized in 2021.

Intra - entity gross profit on transfers (120,000 - 60,000)	60,000
Inventory retained at end of 2020	30%
Unrealized gross profit	18000
2020 Unrealized gross profit deferred :
Intra - entity gross profit on transfers (180,000 - 68,000)	112000
Inventory retained at end of 2020	40%
Unrealized gross profit	44800
Placid Lake's 2021 net income before effect from Scenic	390,000
Scenic's reported net income 2021	200,000
Amortization expense (given)	(7000)
Realization of 2020 intra - entity gross profit	18000
Deferral of 2021 intra entity gross profit	(44800)
Consolidated net income	556200

2.

Scenic's reported net income 2021	200,000
Amortization of excess fair value of intangibles	(7000)
2020 gross profit realized in 2021 (Upstrem sales )	18000
2021 gross profit deferred ( Upstrem sales )	(44800)
Scenic's realized net income	166200
Non controlling interest ownership	10%
Noncontrolling interest share of consolidated net income	16620
Placid Lake's net income from own operations	390,000
Placid Lake's share of Scenics adjusted NI (90% * $166200)	149580
Placid Lake's share of consolidated net income	539580
3. Noncontrolling interest's share of consolidated net income (downstream	sales) :
Downstream transfers do not affect the noncontrolling interest .
Scenic's reported net income 2021 after amortization (200,000 - 7000)	193000
Noncontrolling interest ownership	10%
Noncontrolling interest share of consolidated net income	19300
Placid Lake's net income from own operations	390,000
Placid Lake's share of Scenics adjusted NI (90% * 193000)	173700
Realization of 2020 intra - entity gross profit (See part 1)	18000
Deferral of 2021 intra - entity gross profit (See part 1)	(44800)
Placid Lake's share of consolidated net income	536900
4.
Inventory - Placid Lake book value	230,000
Inventory - Scenic book value	99,000
Unrealized gross profit , 12/31/2021	(44800)
Consolidated inventory	284200