Prior-Period Unrealized Inventory Profit
Holiday Bakery owns 60 percent of Farmco Products Company’s stock. On January 1, 20X9, inventory reported by Holiday included 20,000 bags of flour purchased from Farmco at $9 per bag. By December 31, 20X9, all the beginning inventory purchased from Farmco Products had been baked into products and sold to customers by Holiday. There were no transactions between Holiday and Farmco during 20X9.
Both Holiday Bakery and Farmco Products price their sales at cost plus 50 percent markup for profit. Holiday reported income from its baking operations of $300,000, and Farmco reported net income of $250,000 for 20X9.
Required
a. Compute the amount reported as cost of goods sold in the 20X9 consolidated income statement for the flour purchased from Farmco in 20X8.
b. Give the eliminating entry or entries required to remove the effects of the unrealized profit in beginning inventory in preparing the consolidation worksheet as of December 31, 20X9.
c. Compute the amounts reported as consolidated net income and income assigned to the controlling interest in the 20X9 consolidated income statement.
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