Consolidation with Inventory Transfers and Other Comprehensive Income
On January 1, 20X1, Priority Corporation purchased 90 percent of Tall Corporation’s common stock at underlying book value. At that date, the fair value of the noncontrolling interest was equal to 10 percent of the book value of Tall Corporation. Priority uses the equity method in accounting for its investment in Tall. The stockholders’ equity section of Tall at January 1, 20X5, contained the following balances:
Common Stock ($5 par) | $ 400,000 |
Additional Paid-in Capital | 200,000 |
Retained Earnings | 790,000 |
Accumulated Other Comprehensive Income | 10,000 |
Total | $1,400,000 |
During 20X4, Tall sold goods costing $30,000 to Priority for $45,000, and Priority resold 60 percent prior to year-end. It sold the remainder in 20X5. Also in 20X4, Priority sold inventory items costing $90,000 to Tall for $108,000. Tall resold $60,000 of its purchases in 20X4 and the remaining $48,000 in 20X5.
In 20X5, Priority sold additional inventory costing $30,000 to Tall for $36,000, and Tall resold $24,000 of it prior to year-end. Tall sold inventory costing $60,000 to Priority in 20X5 for $90,000, and Priority resold $48,000 of its purchase by December 31, 20X5.
Priority reported 20X5 income of $240,000 from its separate operations and paid dividends of $150,000. Tall reported 20X5 net income of $90,000 and comprehensive income of $110,000. Tall reported other comprehensive income of $10,000 in 20X4. In both years, other comprehensive income arose from an increase in the market value of securities classified as available-for-sale. Tall paid dividends of $60,000 in 20X5.
Required
a. Compute the balance in the investment account reported by Priority at December 31, 20X5.
b. Compute the amount of investment income reported by Priority on its investment in Tall for 20X5.
c. Compute the amount of income assigned to noncontrolling shareholders in the 20X5 consolidated income statement.
d. Compute the balance assigned to noncontrolling shareholders in the consolidated balance sheet prepared at December 31, 20X5.
e. Priority and Tall report inventory balances of $120,000 and $100,000, respectively, at December 31, 20X5. What amount should be reported as inventory in the consolidated balance sheet at December 31, 20X5?
f. Compute the amount reported as consolidated net income for 20X5.
g. Prepare the eliminating entries needed to complete a consolidation worksheet as of December 31, 20X5.
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