Chapter 5 Test Bank

INTERCOMPANY PROFIT TRANSACTIONS INVENTORIES

Multiple Choie !uestions
"O#
#$ The %aterial sale o& in'entor( ite%s )( a parent o%pan( to an
a&&iliate* o%pan(
a$ enters the onsoli*ate* re'enue o%putation onl( i& the
trans&er +as the result o& ar%,s len-th )ar-ainin-$
)$ a&&ets onsoli*ate* net ino%e un*er a perio*i in'entor(
s(ste% )ut not un*er a perpetual in'entor( s(ste%$
$ *oes not result in onsoli*ate* ino%e until the
%erhan*ise is sol* to outsi*e parties$
*$ *oes not re.uire a +orkin- paper a*/ust%ent i& the
%erhan*ise +as trans&erre* at ost$
"O#
0$ 1one(eater Corporation o+ns a 234 interest in Netar Co%pan(5
a.uire* se'eral (ears a-o at a ost e.ual to )ook 'alue an*
&air 'alue$ Netar sells %erhan*ise to 1one(eater &or the
&irst ti%e in 0335$ In o%putin- ino%e &ro% the in'estee &or
0335 un*er the e.uit( %etho*5 1one(eater uses +hih e.uation6
a$ 234 o& Netar,s ino%e less #334 o& the unreali7e* pro&it
in 1one(eater8s en*in- in'entor($
)$ 234 o& Netar,s ino%e plus #334 o& the unreali7e* pro&it
in 1one(eater8s en*in- in'entor($
$ 234 o& Netar,s ino%e less 234 o& the unreali7e* pro&it in
1one(eater,s en*in- in'entor($
*$ 234 o& Netar,s ino%e plus 234 o& the unreali7e* pro&it in
1one(eater,s en*in- in'entor($
"O#
9$ In situations +here there are routine in'entor( sales )et+een
parent o%panies an* su)si*iaries5 +hen preparin- the
onsoli*ation state%ents5 +hih o& the &ollo+in- line ite%s is
in*i&&erent to the sales )ein- either upstrea% or *o+nstrea%6
a$ Consoli*ate* retaine* earnin-s$
)$ Consoli*ate* -ross pro&it$
$ Nonontrollin- interest e:pense$
*$ Consoli*ate* net ino%e$
;033< Pearson E*uation5 In$ pu)lishin- as Prentie 1all
5=#
"O0
2$ The onsoli*ation proe*ures &or intero%pan( sales are
si%ilar &or upstrea% an* *o+nstrea% sales
a$ i& the %erhan*ise is trans&erre* at ost$
)$ un*er a perio*i in'entor( s(ste% )ut not un*er a perpetual
in'entor( s(ste%$
$ i& the %erhan*ise is i%%e*iatel( sol* to outsi*e parties$
*$ +hen the su)si*iar( is #334 o+ne*$
>se the &ollo+in- in&or%ation to ans+er .uestions 5 throu-h <$
Ea-le Corporation o+ns ?34 o& Fl(+a( In$,s o%%on stok that
+as purhase* at its un*erl(in- )ook 'alue$ The t+o o%panies
report the &ollo+in- in&or%ation &or 0332 an* 0335$
@urin- 03325 one o%pan( sol* in'entor( to the other o%pan(
&or A535333 +hih ost the trans&eror A235333$ As o& the en* o&
03325 934 o& the in'entor( +as unsol*$ In 03355 the re%ainin-
in'entor( +as resol* outsi*e the onsoli*ate* entit($
0332 Selete* @ataB Ea-le Fl(+a(
Sales Re'enue A C335333 A 9035333
Cost o& Doo*s Sol* 9035333 #555333
Other E:penses #335333 ?<5333
Net Ino%e A #?335333 A EC5333
@i'i*en*s Pai* #<5333 3
0335 Selete* @ataB Ea-le Fl(+a(
Sales Re'enue A 5?35333 A 2255333
Cost o& Doo*s Sol* 9335333 #?35333
Other E:penses #935333 #E#5333
Net Ino%e A #535333 A <25333
@i'i*en*s Pai* #C5333 55333
"O0
5$ I& the sale re&erre* to a)o'e +as a *o+nstrea% sale5 the total
sales re'enue reporte* in the onsoli*ate* ino%e state%ent &or
0332 +oul* )e6
a$ A?E35333$
)$ A??35333$
$ A<035333$
*$ A<E35333$
;033< Pearson E*uation5 In$ pu)lishin- as Prentie 1all
5=0
"O0
C$ I& the sale re&erre* to a)o'e +as a *o+nstrea% sale5 )( +hat
a%ount %ust In'entor( )e re*ue* to re&let the orret )alane
as o& the en* o& 03326
a$ A 95333$
)$ A#35333$
$ A#25333$
*$ A035333$
"O0
E$ For 03325 onsoli*ate* net ino%e +ill )e +hat a%ount i& the
intero%pan( sale +as *o+nstrea%6
a$ A2E55C33$
)$ A2EC5?33$
$ A2?C5233$
*$ A53C5333$
"O0
?$ I& the intero%pan( sale %entione* a)o'e +as an upstrea% sale5
+hat +ill )e the reporte* a%ount o& total sales re'enue &or
03356
a$ A#53055333$
)$ A#5<335333$
$ A#5<535333$
*$ A053335333$
"O0
<$ I& the intero%pan( sale +as an upstrea% sale5 the total a%ount
o& onsoli*ate* ost o& -oo*s sol* &or 0335 +ill )e6
a$ A9335333$
)$ A2935333$
$ A2E35333$
*$ A2EE5333$
;033< Pearson E*uation5 In$ pu)lishin- as Prentie 1all
5=9
>se the &ollo+in- in&or%ation to ans+er .uestions < an* #3$
@uk Corporation a.uire* a E34 interest in Fhistle Corporation
on Ganuar( #5 03355 +hen Fhistle,s )ook 'alues +ere e.ual to
their &air 'alues$ @urin- 03355 @uk sol* %erhan*ise that ost
AE55333 to Fhistle &or A##35333$ On @ee%)er 9#5 03355 three=
&ourths o& the %erhan*ise a.uire* &ro% @uk re%aine* in
Fhistle,s in'entor($ Separate ino%es Hin'est%ent ino%e not
inlu*e*I o& @uk an* Fhistle are as &ollo+sB
@uk Fhistle
Sales Re'enue A #535333 A 0335333
Cost o& Doo*s Sol* <35333 E35333
Operatin- E:penses #05333 #55333
Separate ino%es A 2?5333 A ##55333
"O9
#3$ The onsoli*ate* ino%e state%ent &or @uk Corporation an*
su)si*iar( &or the (ear en*e* @ee%)er 9#5 0335 +ill sho+
onsoli*ate* ost o& sales o&6
a$ A 535333$
)$ A EC5053$
$ A#995E53$
*$ A#C35333$
"O9
##$ @uk,s ino%e &ro% Fhistle &or 0335 is6
a$ A525053$
)$ A5C5333$
$ AC05#05$
*$ A?35533$
;033< Pearson E*uation5 In$ pu)lishin- as Prentie 1all
5=2
"O9
#0$ Pon* Co$ a 554=o+ne* su)si*iar( o& Doose In$ %a*e the
&ollo+in- entr( to reor* a sale o& %erhan*ise to DooseB
Aounts Reei'a)le C35333
Sales Re'enue C35333
All Pon* sales are at #054 o& ost$ One=thir* o& this
%erhan*ise re%aine* in the Doose,s in'entor( at (ear=en*$ A
+orkin- paper entr( to eli%inate unreali7e* pro&its &ro%
onsoli*ate* in'entor( +oul* inlu*e a re*it to In'entor( in
the a%ount o&
a$ A 25333$
)$ A 55333$
$ A ?5333$
*$ A#35333$
>se the &ollo+in- in&or%ation to ans+er .uestions #95 #25 an*
#5$
Fren Corporation a.uire* ?34 o+nership o& Ari* Inorporate*5
at a ti%e +hen Fren,s in'est%ent Husin- the e.uit( %etho*I an*
Ari*,s )ook 'alues +ere e.ual$ @urin- 03355 Fren sol* -oo*s to
Ari* &or A0335333 %akin- a -ross pro&it perenta-e o& 034$
1al& o& these -oo*s re%aine* unsol* in Ari*,s in'entor( at the
en* o& the (ear$ Ino%e state%ent in&or%ation &or Fren an*
Ari* &or 0335 +ere as &ollo+sB
Fren Ari*
Sales Re'enue A #53335333 A C335333
Cost o& Doo*s Sol* 5335333 2335333
Operatin- E:penses 5335333 ?35333
Separate ino%es A 0535333 A #035333
"O9
#9$ The 0335 onsoli*ate* ino%e state%ent sho+e* ost o& -oo*s
sol* o&
a$ AE035333$
)$ A??35333$
$ A<335333$
*$ A<035333$
;033< Pearson E*uation5 In$ pu)lishin- as Prentie 1all
5=5
"O9
#2$ The 0335 onsoli*ate* ino%e state%ent sho+e* ino%e &ro% Ari*
o&
a$ A5C5333$
)$ AEC5333$
$ A?35333$
*$ A<C5333$
"O9
#5$ The 0335 onsoli*ate* ino%e state%ent sho+e* nonontrollin-
ino%e o&
a$ A 05333$
)$ A ?5333$
$ A035333$
*$ A025333$
"O2
#C$ On Ganuar( #5 03325 @arter In*ustries a.uire* an ?34 interest
in Ther%al Co%pan( to insure a stea*( suppl( o& Ther%al,s
in'entor( that @arter uses in its o+n %anu&aturin- )usinesses$
Ther%al sol* #334 o& its output to @arter *urin- 0332 an* 0335
at a %arkup o& #034 o& Ther%al,s ost$ @arter ha* A<5C33 o&
these ite%s re%ainin- in its Ganuar( #5 0335 in'entor( an* no
ite%s on @ee%)er 9#5 0335$ I& @arter ne-lete* to eli%inate
unreali7e* pro&its &ro% all intero%pan( sales &ro% Ther%al5
onsoli*ate* net ino%e &or 0335 +as
a$ o'erstate* )( A903$
)$ un*erstate* )( A233$
$ o'erstate* )( A05233$
*$ una&&ete* )eause @arter )u(s #334 o& Ther%al,s output$
>se the &ollo+in- in&or%ation &or .uestions #E an* #?B
Dre)e Co%pan( routinel( reei'es -oo*s &ro% its ?34=o+ne* su)si*iar(5
S+a%p Corporation$ In 03325 S+a%p sol* %erhan*ise that ost A?35333
to Dre)e &or A#335333$ 1al& o& this %erhan*ise re%aine* in Dre)e,s
@ee%)er 9#5 0332 in'entor($ @urin- 03355 S+a%p sol* %erhan*ise that
ost A#C35333 to Dre)e &or A0335333$ AC05533 o& the 0335 %erhan*ise
in'entor( re%aine* in Dre)e,s @ee%)er 9#5 0335 in'entor($ Selete*
ino%e state%ent in&or%ation &or the t+o a&&iliates &or the (ear 0335
+as as &ollo+sB
Dre)e S+a%p
Sales Re'enue A5335333 A2335333
Cost o& Doo*s Sol* 2335333 9035333
Dross pro&it A#335333 A ?35333
;033< Pearson E*uation5 In$ pu)lishin- as Prentie 1all
5=C
"O2
#E$ Consoli*ate* ost o& -oo*s sol* &or Dre)e an* Su)si*iar( &or
0335 +ere
a$ A5#05333$
)$ A50C5333$
$ A5005533$
*$ A50?5333$
"O2
#?$ Fhat a%ount o& unreali7e* pro&it *i* Dre)e Co%pan( ha'e at the
en* o& 03326
a$ A#35333$
)$ A#05533$
$ A535333$
*$ AC05533$
"O5
#<$
9$
A parent o%pan( re-ularl( sells %erhan*ise to its E34=o+ne*
su)si*iar($ Fhih o& the &ollo+in- state%ents *esri)es the
o%putation o& %inorit( interest ino%e6
a$ The su)si*iar(,s net ino%e ti%es 934$
)$ HThe su)si*iar(,s net ino%e : 934I J unreali7e* pro&its in
the )e-innin- in'entor( unreali7e* pro&its in the en*in-
in'entor($
$ HThe su)si*iar(,s net ino%e J unreali7e* pro&its in the
)e-innin- in'entor( unreali7e* pro&its in the en*in-
in'entor(I : 934$
*$ HThe su)si*iar(,s net ino%e J unreali7e* pro&its in the
en*in- in'entor( unreali7e* pro&its in the )e-innin-
in'entor(I : 934$
"O5
03$ S.ui* Corporation5 a <34=o+ne* su)si*iar( o& Pen-uin
Corporation5 sol* in'entor( ite%s to its parent at a A025333
pro&it in 0335$ Pen-uin resol* one=thir* o& this in'entor( to
outsi*e entities$ S.ui* reporte* net ino%e o& A#335333 &or
0335$ Minorit( interest ino%e that +ill appear in the
onsoli*ate* ino%e state%ent &or 0335 is
a$ A ?5233$
)$ A <5033$
$ A#35333$
$ A#35?33$
;033< Pearson E*uation5 In$ pu)lishin- as Prentie 1all
5=E
"O9
E:erise #
Petrel Corporation a.uire* a C34 interest in Salt Corporation on
Ganuar( #5 03355 at a ost e.ual to )ook 'alue an* &air 'alue$ Salt
reports net ino%e o& A??35333 &or 0335$ Petrel re-ularl( sells
%erhan*ise to Salt at #034 o& Petrel,s ost$ The intero%pan( sales
in&or%ation &or 0332 is as &ollo+sB
Intero%pan( sales at sellin- prie A CE05333
Value o& %erhan*ise re%ainin-
unsol* )( Salt #905333
Re.uire*B
#$ @eter%ine the unreali7e* pro&it in Salt,s in'entor( at @ee%)er
9#5 0332$
0$ Co%pute Petrel,s ino%e &ro% Salt &or 0335$
"O9K2
E:erise 0
Fri-ate)ir* Co$ )ou-ht E54 o& the outstan*in- 'otin- stok o& Cli&&
Corporation at )ook 'alue se'eral (ears a-o$ Fri-ate)ir* sells
%erhan*ise to Cli&& at #054 a)o'e Fri-ate)ir*,s ost$ Intero%pan(
sales &ro% Fri-ate)ir* to Cli&& &or 0335 +ere AC535333$ >nreali7e*
pro&its in Cli&&,s @ee%)er 9#5 0332 in'entor( an* @ee%)er 9#5 0335
in'entor( +ere A0E5333 an* A9?53335 respeti'el($ Cli&& reporte* net
ino%e o& A<335333 &or 0335$
Re.uire*B
#$ @eter%ine Fri-ate)ir*,s ino%e &ro% Cli&& &or 0335$
0$ In Deneral Gournal &or%at5 prepare onsoli*ation +orkin- paper
entries to eli%inate the e&&ets o& the intero%pan( in'entor(
sales assu%in- the perpetual in'entor( %etho* is use*$
;033< Pearson E*uation5 In$ pu)lishin- as Prentie 1all
5=?
"O9K2
E:erise 9
Tern Corporation a.uire* an ?34 interest in 1ar)or Corporation
se'eral (ears a-o +hen 1ar)or,s )ook 'alues an* &air 'alues +ere
e.ual$ Separate o%pan( ino%e state%ents &or Tern an* 1ar)or &or the
(ear en*e* @ee%)er 9#5 0335 are su%%ari7e* as &ollo+sB
Tern 1ar)or
Sales Re'enue A #53335333 A C335333
Ino%e &ro% 1ar)or ?35333
Cost o& Doo*s Sol* H C335333 IH 9335333 I
E:penses H 0335333 IH 0335333 I
Net Ino%e A 0?35333 A #335333
@urin- 0332 Tern sol* %erhan*ise that ost A#035333 to 1ar)or &or
A#?35333$ 1al& o& this %erhan*ise re%aine* in 1ar)or,s in'entor( at
@ee%)er 9#5 0332$ @urin- 03355 Tern sol* %erhan*ise that ost
A#535333 to 1ar)or &or A0055333$ One=thir* o& this %erhan*ise
re%aine* in 1ar)or,s @ee%)er 9#5 0335 in'entor($
Re.uire*B
Prepare a onsoli*ate* ino%e state%ent &or Tern Corporation an*
Su)si*iar( &or 0335$
"O9K2
E:erise 2
E-ret Corporation a.uire* an ?34 interest in Tik Corporation at
)ook 'alue in 0332$ @urin- 03355 E-ret sol* A#2?5333 o& %erhan*ise
to Tik at #C34 o& E-ret,s ost$ Tik,s )e-innin- an* en*in-
in'entories &or 0335 +ere A9?5333 an* A2253335 respeti'el($ Ino%e
state%ent in&or%ation &or )oth o%panies &or 0335 is as &ollo+sB
E-ret Tik
Sales Re'enue A 9935333 A #?35333
Ino%e &ro% Tik 935233
Cost o& Doo*s Sol* H #<35333 IH ##05333 I
E:penses H C55333 IH 935333 I
Net Ino%e A #355233 A 9?5333
Re.uire*B
Prepare a onsoli*ate* ino%e state%ent &or E-ret Corporation an*
Su)si*iar( &or 0335$
;033< Pearson E*uation5 In$ pu)lishin- as Prentie 1all
5=<
"O2
E:erise 5
I)is Corporation a.uire* #334 o& "ake Co$ o%%on stok on Ganuar( #5
03395 &or A5535333 +hen the )ook 'alues o& "ake,s assets an*
lia)ilities +ere e.ual to their &air 'alues an* "ake,s stokhol*ers,
e.uit( onsiste* o& A0?35333 o& Capital Stok an* A0E35333 o&
Retaine* Earnin-s$
I)is, separate ino%e He:lu*in- "akeI +as A<3353335 ?535333 an*
<535333 in 03395 0332 an* 0335 respeti'el($ I)is sol* in'entor( to
"ake *urin- 0339 at a -ross pro&it o& A235333 an* 93 perent re%aine*
at "ake at the en* o& the (ear$ The re%ainin- 93 perent +as sol* in
0332$ At the en* o& 03325 I)is has A055333 o& in'entor( reei'e*
&ro% "ake &ro% a sale o& A0335333 +hih ost "ake A#C35333$ There are
no unreali7e* pro&its in the in'entor( o& I)is or "ake at the en* o&
0335$ I)is uses the e.uit( %etho* in its separate )ooks$ Selet
&inanial in&or%ation &or "ake &ollo+sB
0339 0332 0335
Sales A ?335333 A ?535333 A <535333
Cost o& Sales 2035333 2235333 5335333
Dross Pro&it 9?35333 2#35333 2535333
Operatin- E:penses 9335333 9035333 9?35333
Net Ino%e ?35333 <35333 E35333
Re.uire*B
Prepare a she*ule to *eter%ine I)is Corporation,s net ino%e &or 03395
03325 an* 0335$
;033< Pearson E*uation5 In$ pu)lishin- as Prentie 1all
5=#3
"O9K2
E:erise C
Bittern Corporation a.uire* a E34 interest in Ree* Corporation at
)ook 'alue se'eral (ears a-o$ Ree* purhases its entire in'entor(
&ro% Bittern at #234 o& Bittern,s ost$ @urin- 03355 Bittern sol*
A#C35333 o& %erhan*ise to Ree*$ Ree*,s )e-innin- an* en*in-
in'entories &or 0335 +ere A2<5333 an* A995C335 respeti'el($ Ino%e
state%ent in&or%ation &or )oth o%panies &or 0335 is as &ollo+sB
Bittern Ree*
Sales Re'enue A 2335333 A 0035333
Ino%e &ro% Ree* E55C33
Cost o& Doo*s Sol* H 0#35333 IH E05333 I
E:penses H ?55333 IH 235333 I
Net Ino%e A #?35C33 A #3?5333
Re.uire*B
Prepare a onsoli*ate* ino%e state%ent &or Bittern Corporation an*
Su)si*iar( &or 0335$
"O 9K2
E:erise E
E-ret Corporation pai* A025?33 &or an ?34 interest in Plu%e
Corporation on Ganuar( #5 03325 at +hih ti%e Plu%e,s stokhol*ers,
e.uit( onsiste* o& A#55333 o& Co%%on Stok an* AC5333 o& Retaine*
Earnin-s$ The &air 'alues o& Plu%e Corporation,s assets an*
lia)ilities +ere i*ential to reor*e* )ook 'alues +hen E-ret
a.uire* its ?34 interest$
Plu%e Corporation reporte* net ino%e o& A25333 an* pai* *i'i*en*s o&
A05333 *urin- 0332$
E-ret Corporation sol* in'entor( ite%s to Plu%e *urin- 0332 an* 0335
as &ollo+sB
0332 0335
E-ret,s sales to Plu%e A 55333 A C5333
E-ret,s ost o& sales to Plu%e 95333 95533
>nreali7e* pro&it at (ear=en* #5333 #5533
The aounts pa(a)le o& Plu%e inlu*e A#5533 o+e* to E-ret &or
in'entor( purhases$
;033< Pearson E*uation5 In$ pu)lishin- as Prentie 1all
5=##
The &ollo+in- on'ersion to e.uit( she*ule pro'i*es in&or%ation that
%a( )e help&ul in o%pletin- the onsoli*ation +orkin- papers &or the
(ear en*e* @ee%)er 9#5 0335$
Retaine*
Earnin-s
In'est%ent
in Plu%e
Ino%e
&ro%
Plu%e
Prior (earsB
In'entor( pro&it A H #5333 I AH #5333 I
Current (earB

In'entor( pro&it=0332 A A #5333 A #5333
In'entor( pro&it=0335 A AH #5533 I AH#5533 I
Totals A H #5333 I AH #5533 I AH 533 I
Re.uire*B
Finanial state%ents o& E-ret an* Plu%e appear in the &irst t+o
olu%ns o& the partiall( o%plete* +orkin- papers$ Co%plete the
onsoli*ation +orkin- papers &or E-ret Corporation an* Su)si*iar( &or
the (ear en*e* @ee%)er 9#5 0335$
;033< Pearson E*uation5 In$ pu)lishin- as Prentie 1all
5=#0
E-ret Corporation an* Su)si*iar(
Consoli*ation Forkin- Papers
&or the (ear en*e* @ee%)er 9#5 0335
E-ret Plu%e
Eli%inations Balane
Sheet @e)it Cre*it
INCOME STATEMENT
Sales A

295333
A035333
Ino%e &ro%
Plu%e
E5033
Cost o& Sales
H 005333I H ?5333I
Other e:penses
H #05033I H 95333I
Net ino%e #C5333 <5333
Retaine*
Earnin-s #L#
#35333 ?5333
A**B
Net ino%e
#C5333

<5333
"essB
@i'i*en*s
H #35333I H 55333I
Retaine*
Earnin-s #0L9# A
#C5333 A#05333
BA"ANCE S1EET
Cash
55233 95333
Aounts
Reei'a)le=net
#25333 #35333
@i'i*en*
Reei'a)le
05333
In'entories
#?5333 ?5333
Doo*+ill
E.uip%ent an*
Buil*in-s=net
025333 9#5333
In'est%ent in
Plu%e
0<5C33
TOTA" ASSETS A <95333 A505333
"IAB$ K E!>ITY
Aounts pa(a)le

#E5533
#05533
@i'i*en* pa(a)le E5333 05533
Other *e)t #05533 #35333
Capital stok 235333 #55333
Retaine*
Earnin-s #C5333 #05333
#L# Nonontrl$
Interest
#0L9# Nonontrl$
Interest
"IAB$ K E!>ITY
A
<95333 A505333
;033< Pearson E*uation5 In$ pu)lishin- as Prentie 1all
5=#9
"O2
E:erise ?
Car*inal Corporation a.uire* a <34 interest in Ro)in Corporation at
)ook 'alue in 0332$ @urin- 03355 Car*inal sol* A0035333 o&
%erhan*ise to Ro)in at a -ross pro&it rate o& 934$ Ro)in,s )e-innin-
an* en*in- in'entories &or 0335 +ere A935333 an* A2353335
respeti'el($ Ino%e state%ent in&or%ation &or )oth o%panies &or
0335 is as &ollo+sB
Car*inal Ro)in
Sales Re'enue A ?935333 A 0<35333
Ino%e &ro% Ro)in 9C5<33
Cost o& Doo*s Sol* H 5935333 IH #<E5333 I
E:penses H #E<5333 IH 505333 I
Net Ino%e A #5E5<33 A 2#5333
Re.uire*B
Prepare a onsoli*ate* ino%e state%ent &or Car*inal Corporation an*
Su)si*iar( &or 0335$
"O5
E:erise <
Plo'er Corporation a.uire* ?34 o& Arti In$ e.uit( on Ganuar( #5
03395 +hen the )ook 'alues o& Arti,s assets an* lia)ilities +ere
e.ual to their &air 'alues$
Plo'er separate ino%e He:lu*in- ArtiI +as A#5?3353335 #5E335333
an* #5<335333 in 03395 0332 an* 0335 respeti'el($ Plo'er sol*
in'entor( to Arti *urin- 0339 at a -ross pro&it o& A2?5333 an* one
.uarter re%aine* at Arti at the en* o& the (ear$ The re%ainin- 05
perent +as sol* in 0332$ At the en* o& 03325 Plo'er has A055333 o&
in'entor( reei'e* &ro% Arti &ro% a sale o& A#335333 +hih ost
Arti A?35333$ There are no unreali7e* pro&its in the in'entor( o&
Plo'er or Arti at the en* o& 0335$ Plo'er a uses the e.uit( %etho*
in its separate )ooks$ Selet &inanial in&or%ation &or Arti
&ollo+sB
0339 0332 0335
Sales A E<35333 A ?235333 A <235333
Cost o& Sales 2035333 2235333 5335333
Dross Pro&it 9E35333 2335333 2235333
Operatin- E:penses 9335333 9035333 9535333
Net Ino%e E35333 ?35333 <35333
;033< Pearson E*uation5 In$ pu)lishin- as Prentie 1all
5=#2
Re.uire*B
Prepare a she*ule to *eter%ine Plo'er Corporation,s net ino%e &or
03395 03325 an* 0335$
"O5
E:erise #3
On Ganuar( #5 03325 "ap+in- Corporation purhase* E34 o& the o%%on
stok o& Fora-e Corporation &or A9035333 +hen Fora-e ha* Co%%on Stok
outstan*in- o& A#335333 an* Retaine* Earnin-s o& A0335333$ An( e:ess
*i&&erential +as attri)ute* to -oo*+ill$
At the en* o& 03325 "ap+in- an* Fora-e ha* unreali7e* in'entor(
pro&its &ro% intero%pan( sales o& AC5333 an* A?53335 respeti'el($
These (ear=en* pro&it a%ounts +ere reali7e* in 0335$ At the en* o&
0335 "ap+in- hel* in'entor( a.uire* &ro% Fora-e +ith a A#35333
unreali7e* pro&it$ "ap+in- reporte* separate ino%e o& A#335333 &or
0335 an* pai* *i'i*en*s o& A935333$ Fora-e reporte* separate ino%e
o& AE35333 &or 0335 an* pai* *i'i*en*s o& A035333$
Re.uire*B
Co%pute the a%ount o& onsoli*ate* net ino%e &or 0335$
;033< Pearson E*uation5 In$ pu)lishin- as Prentie 1all
5=#5
SO">TIONS
Multiple Choie !uestions
#$
0$
9$ )
2$ *
5$ a 0332 o%)ine* sales A<035333
"essB 0332 intero%pan(
sales H 535333 I
Consoli*ate* sales A?E35333
C$ a Sellin- prie A 535333
"essB Cost o& sales 235333
Ori-inal unreali7e* pro&it #35333
>nsol* perenta-e 934
>nreali7e* pro&it A 95333
E$ )
?$ a Co%)ine* 0335 sales A #53055333
"essB 0335 intero%pan(
sales 3
Consoli*ate* sales A #53055333
<$ * Co%)ine* ost o& sales A 2?35333
"essB 0335 intero%pan(
sales 3
"essB >nreali7e* pro&it in
the 0335 )e-innin- in'en=
tor( &ro% 0332 H 95333 I
PlusB >nreali7e* pro&it in
0335 en*in- in'entor( 3
Consoli*ate* ost o& sales A 2EE5333
;033< Pearson E*uation5 In$ pu)lishin- as Prentie 1all
5=#C
#3$ ) Co%)ine* ost o& sales A #C35333
"essB Intero%pan( sales re'enue H ##35333 I
PlusB >nreali7e* pro&it taken out
o& in'entor( HE54I:H955333I M 0C5053
Consoli*ate* ost o& sales A EC5053
##$ a HA##55333 : E34I = A0C5053 M A 525053
#0$ a Sellin- prie A C35333
"essB Cost o& sales H 2?5333 I
>nreali7e* pro&it #05333
>nsol* &ration #L9
Cre*it to In'entor( A 25333
#9$ a 5335333J2335333=
0335333J035333
#2$ ) #035333N$?=0335333N$0N$5
#5$ * @o+nstrea% situation
#C$ a It +ill )e o'erstate* )( the
a%ount o& the %inorit( interests,
share o& the A#5C33 o& pro&it
%ar-in in the A<5C33 o& %aterials
arrie* o'er to 0335 M H034 :
A#5C33I M A 903
#E$ Dre)e plus S+a%p,s separate ost
o& -oo*s sol* M A2335333
J A9035333 M A E035333
"essB Intero%pan( sales M H 0335333 I
A*/ustB Pro&it J#05533=#35333 M 05533
Consoli*ate* CODS M A 5005533 I
#?$ )
;033< Pearson E*uation5 In$ pu)lishin- as Prentie 1all
5=#E
#<$ a
03$ a Minorit( interest ino%eB
S.ui*,s reporte* ino%e A #335333
"essB >nreali7e* pro&its in the
en*in- in'entor( H #C5333 I
S.ui*,s a*/uste* ino%e A ?25333
Minorit( interest perenta-e #34
Minorit( interest ino%e A ?5233
;033< Pearson E*uation5 In$ pu)lishin- as Prentie 1all
5=#?
E:erise #
Re.uire%ent #
>nreali7e* pro&it in in'entor(B
A#905333 HA#905333L#$0I M A 005333
Re.uire%ent 0
Ino%e &ro% Salt &or 0335B
Share o& Salt,s ino%e HA??35333 : C34I A 50?5333
"essB >nreali7e* pro&it in en*in- in'entor( H 005333 I
Ino%e &ro% Salt A 53C5333
E:erise 0
Re.uire%ent #
Ino%e &ro% Cli&&B
Share o& Cli&&,s reporte* net ino%e
A<335333 : E54 M A CE55333
A**B >nreali7e* pro&it in )e-innin- in'entor( 0E5333
"essB >nreali7e* pro&it in en*in- in'entor( H 9?5333 I
Ino%e &ro% Cli&& A CC25333 I
Re.uire%ent 0
@e)it Cre*it
Sales Re'enue C535333
Cost o& Doo*s Sol* C535333
To eli%inate intero%pan( sales an* purhases
In'est%ent in Cli&& 0E5333
Cost o& Doo*s Sol* 0E5333
To reo-ni7e pre'iousl( *e&erre* unreali7e* pro&its &ro% the
)e-innin- in'entor(
Cost o& Doo*s Sol* 9?5333
In'entor( 9?5333
To eli%inate intero%pan( pro&it in the en*in- in'entor( &ro% ost o&
-oo*s sol* an* in'entor(
;033< Pearson E*uation5 In$ pu)lishin- as Prentie 1all
5=#<
E:erise 9
Tern Corporation an* Su)si*iar(
Consoli*ate* Ino%e State%ent
&or the (ear en*e* @ee%)er 9#5 0335
Sales Ho%)ine* A#5C335333 = A0055333 intero%pan( A #59E55333
Cost o& Doo*s Sol* Hsee )elo+I H CE35333I
E:penses H 2335333I
Minorit( Interest H 035333I
Consoli*ate* net ino%e A 0?55333
Consoli*ate* ost o& -oo*s sol* o%putationB
Co%)ine* ost o& sales HAC335333 J A9335333I A <335333
"essB Intero%pan( sales H 0055333I
"essB >nreali7e* pro&it in )e-innin- in'entor(
HA#?35333 = A#035333I : #L0 H 935333
I
A**B >nreali7e* pro&it in en*in- in'entor(
HA0055333 = A#535333I : #L9 055333
Consoli*ate* Cost o& Doo*s Sol* A CE35333
E:erise 2
E-ret Corporation an* Su)si*iar(
Consoli*ate* Ino%e State%ent
&or the (ear en*e* @ee%)er 9#5 0335
Sales Ho%)ine* A9935333 J A#?35333 = A#2?5333I A 9C05333
Cost o& Doo*s Sol* Hsee )elo+I H #5C5053I
E:penses H <55333I
Minorit( Interest H E5C33I
Consoli*ate* net ino%e A #395#53
Consoli*ate* ost o& -oo*s sol* o%putationB
Co%)ine* ost o& sales HA#<35333 J A##05333I A 9305333
"essB Intero%pan( sales H #2?5333I
"essB >nreali7e* pro&it in )e-innin- in'entor(
HA9?5333 HA9?5333L#$CI H #25053
I
A**B >nreali7e* pro&it in en*in- in'entor(
HA225333 HA225333L#$CI #C5533
Consoli*ate* Cost o& Doo*s Sol* A #5C5053
;033< Pearson E*uation5 In$ pu)lishin- as Prentie 1all
5=03
E:erise 5
0339 0332 0335
I)is,s separate ino%e A <335333 A ?535333 A <535333
A**B "ake,s reporte* net ino%e ?35333 <35333 E35333
>nreali7e* pro&it in 0339 ino%e H #05333 I #05333
>nreali7e* pro&it in 0332 ino%e H 55333 I 55333
Consoli*ate* net ino%e A <C?5333 A <2E5333 A #53055333
E:erise C
Preli%inar( o%putationsB
>nreali7e* pro&it in )e-innin- in'entor( e.ualsB
A2<5333 HA2<5333L#$2I M A #25333
>nreali7e* pro&it in en*in- in'entor(B
A995C33 HA995C33L#$2I M A <5C33
Consoli*ate* net ino%eB
Sales Ho%)ine* AC035333 = A#C35333 intero%pan( A 2C35333
Cost o& Doo*s Sol* Hsee )elo+I H ##E5C33I
E:penses H #055333I
Minorit( Interest H 905233I
Consoli*ate* net ino%e A #?55333
Consoli*ate* ost o& -oo*s sol* o%putationB
Co%)ine* ost o& sales HA0#35333 J AE05333I A 0?05333
"essB Intero%pan( sales H #C35333I
"essB >nreali7e* pro&it in )e-innin- in'entor( H #25333I
A**B >nreali7e* pro&it in en*in- in'entor( <5C33
Consoli*ate* Cost o& Doo*s Sol* A ##E5C33
;033< Pearson E*uation5 In$ pu)lishin- as Prentie 1all
5=0#
E:erise E
E-ret Corporation an* Su)si*iar(
Consoli*ation Forkin- Papers
&or the (ear en*e* @ee%)er 9#5 0335
E-ret Plu%e
Eli%inations Non=
Cntrl$
Balane
Sheet @e)it Cre*it
INCOME STATEMENT
Sales A

295333 A035333 ) AC5333 A5E5333
Ino%e &ro%
Plu%e E5033
a
e
533
C5E33
Cost o& Sales H 005333I H ?5333I
* #5533 )

C5333
#5333 H 025533I
Other e:penses H #05033I H 95333I H #55033I
Minorit( ino%e #5?33 H #5?33I
Net ino%e #C5333 <5333 #55533
Retaine*
Earnin-s #L# #35333 ?5333
a
&
#5333
?5333 <5333
A**B Net ino%e #C5333 <5333 #55533
"essB @i'i*en*s H #35333I H 55333I e 25333 H#5333I H #35333I
Retaine*
Earnin-s #0L9# A #C5333 A#05333 A#25533
BA"ANCE S1EET
Cash 55233 95333 ?5233
Net Reei'a)les #25333 #35333 h #5533 005533
@i'i*en*
Reei'a)le 05333 - 05333
In'entories #?5333 ?5333 * #5533 025533
Doo*+ill & ?5333 ?5333
Plant assets=net 025333 9#5333 555333
In'est%ent in
Plu%e 0<5C33
#5333 a
e
&
#5533
05E33
0C5233
TOTA" ASSETS A <95333 A505333 A##?5233
"IAB$ K E!>ITY
Aounts pa(a)le

#E5533 #05533 h #5533 0?5533
@i'i*en* pa(a)le E5333 05533 - 05333 E5533
Other *e)t #05533 #35333 005533
Capital stok 235333 #55333 & #55333 235333
Retaine*
Earnin-s #C5333 #05333 #25533
#L# Nonntrl$
Interest
& 25C33 25C33
#0L9# Nonntrl$
Interest 55233 55233
TOTA" "IAB$ K
E!>ITY
A<95333 A505333 A##?5233
;033< Pearson E*uation5 In$ pu)lishin- as Prentie 1all
5=00
E:erise ?
Car*inal Corporation an* Su)si*iar(
Consoli*ate* Ino%e State%ent
&or the (ear en*e* @ee%)er 9#5 0335
Sales Ho%)ine* A?935333 J A0<35333 = A0035333I A <335333
Cost o& Doo*s Sol* Hsee )elo+I H 5#35333I
E:penses H 09#5333I
Minorit( Interest H 25#33I
Consoli*ate* net ino%e A #525<33
Consoli*ate* ost o& -oo*s sol* o%putationB
Co%)ine* ost o& sales HA5935333 J A#<E5333I A E0E5333
"essB Intero%pan( sales H 0035333I
"essB >nreali7e* pro&it in )e-innin- in'entor(
HA935333 : $93I H <5333
I
A**B >nreali7e* pro&it in en*in- in'entor(
HA235333 : $93I #05333
Consoli*ate* Cost o& Doo*s Sol* A 5#35333
E:erise <
0339 0332 0335
Plo'er,s separate ino%e A #5?335333 A #5E335333 A #5<335333
A**B Arti,s net ino%e E35333 ?35333 <35333
>nreali7e* pro&it in 0339
ino%e
H #05333 I #05333
>nreali7e* pro&it in 0332
ino%e
H 55333 I 55333
Su)tratB Nonontrollin-
Interest
H #25333 I H #55333 I H #E5333 I
Consoli*ate* net ino%e A #5?225333 A #5EE05333 A #5<E?5333
0332 Nonontrollin- Interest
MH?35333=55333IN$0
0335 Nonontrollin- Interest
MH<35333J55333IN$0
;033< Pearson E*uation5 In$ pu)lishin- as Prentie 1all
5=09
E:erise #3
"ap+in- separate ino%eB A #335333
A**B Reali7e* pro&it in )e-innin-
in'entor( H-i'enI C5333
"essB >nreali7e* pro&it in en*in-
in'entor( H-i'enI H #35333 I
"ap+in- a*/uste* separate ino%e A <C5333
Fora-e separate ino%eB
Separate ino%e as reporte* A E35333
A**B Reali7e* )e-innin- in'entor( pro&it ?5333
E.ualsB A*/uste* Fora-e ino%e E?5333
Ma/orit( perenta-e E34
Ino%e &ro% Fora-e 525C33 525C33
Consoli*ate* net ino%e A #535C33
;033< Pearson E*uation5 In$ pu)lishin- as Prentie 1all
5=02