Income Statement Effects of Unrealized Profit
Holiday Bakery owns 60 percent of Farmco Products Company’s stock. During 20X8, Farmco produced 100,000 bags of flour, which it sold to Holiday Bakery for $900,000. On December 31, 20X8, Holiday had 20,000 bags of flour purchased from Farmco Products on hand. Farmco prices its sales at cost plus 50 percent of cost for profit. Holiday, which purchased all its flour from Farmco in 20X8, had no inventory on hand on January 1, 20X8.
Holiday Bakery reported income from its baking operations of $400,000, and Farmco Products reported net income of $150,000 for 20X8.
Required
a. Compute the amount reported as cost of goods sold in the 20X8 consolidated income statement.
b. Give the worksheet eliminating entry or entries required to remove the effects of the intercompany sale in preparing consolidated statements at the end of 20X8.
c. Compute the amounts reported as consolidated net income and income assigned to the controlling interest in the 20X8 consolidated income statement.
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