Penguin Corporation acquired 80 percent of the outstanding voting stock of Snow Company on January 1, 2010, for $420,000 in cash and other consideration. At the acquisition date, Penguin assessed Snow’s identifiable assets and liabilities at a collective net fair value of $525,000 and the fair value of the 20 percent noncontrolling interest was $105,000. No excess fair value over book value amortization accompanied the acquisition.
The following selected account balances are from the individual financial records of these two companies as of December 31, 2011:
| Penguin | Snow |
Sales | $640,000 | $360,000 |
Cost of goods sold | 290,000 | 197,000 |
Operating expenses | 150,000 | 105,000 |
Retained earnings, 1/1/11 | 740,000 | 180,000 |
Inventory | 346,000 | 110,000 |
Buildings (net) | 358,000 | 157,000 |
Investment income | Not given | -0- |
Each of the following problems is an independent situation:
a. Assume that Penguin sells Snow inventory at a markup equal to 40 percent of cost. Intra-entity transfers were $90,000 in 2010 and $110,000 in 2011. Of this inventory, Snow retained and then sold $28,000 of the 2010 transfers in 2011 and held $42,000 of the 2011 transfers until 2012.
On consolidated financial statements for 2011, determine the balances that would appear for the following accounts:
Cost of Goods Sold
Inventory
Noncontrolling Interest in Subsidiary’s Net Income
b. Assume that Snow sells inventory to Penguin at a markup equal to 40 percent of cost. Intra-entity transfers were $50,000 in 2010 and $80,000 in 2011. Of this inventory, $21,000 of the 2010 transfers were retained and then sold by Penguin in 2011, whereas $35,000 of the 2011 transfers were held until 2012.
On consolidated financial statements for 2011, determine the balances that would appear for the following accounts:
Cost of Goods Sold
Inventory
Noncontrolling Interest in Subsidiary’s Net Income
c. Penguin sells Snow a building on January 1, 2010, for $80,000, although its book value was only $50,000 on this date. The building had a five-year remaining life and was to be depreciated using the straight-line method with no salvage value.
Determine the balances that would appear on consolidated financial statements for 2011 for
Buildings (net)
Operating Expenses
Noncontrolling Interest in Subsidiary’s Net Income
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