Intercompany Sales
Hollow Corporation acquired 70 percent of Surg Corporation’s voting stock on May 18, 20X1. The companies reported the following data with respect to intercompany sales in 20X4 and 20X5:
Year | Purchased by | Purchase Price | Sold to | Sale Price | Unsold at End of Year | Year Sold to Unaffilliated Co. |
20X4 | Surg Corp. | $120,000 | Hollow Corp. | $180,000 | $ 45,000 | 20X5 |
20X5 | Surg Corp. | 90,000 | Hollow Corp. | 135,000 | 30,000 | 20X6 |
20X5 | Hollow Corp. | 140,000 | Surg Corp. | 280,000 | 110,000 | 20X6 |
Hollow reported operating income (excluding income from its investment in Surg) of $160,000 and $220,000 in 20X4 and 20X5, respectively. Surg reported net income of $90,000 and $85,000 in 20X4 and 20X5, respectively.
Required
a. Compute consolidated net income for 20X4.
b. Compute the inventory balance reported in the consolidated balance sheet at December 31, 20X5, for the transactions shown.
c. Compute the amount included in consolidated cost of goods sold for 20X5 relating to the transactions shown.
d. Compute the amount of income assigned to the controlling interest in the 20X5 consolidated income statement.
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