Expert Answers

E6-6 Nordyay Corporation

E6-8 Inventory Transfer between Parent and Subsidiary

Karlow Corporation owns 60 percent of Draw Company’s voting shares. During 20X3, Karlow produced 25,000 computer desks at a cost of $82 each sold 10,000 desks to Draw for $94 each. Draw sold 7,000 of the desks to unaffiliated companies for $130 each prior to December 31, 20X3, and sold the remainder in early 20X4 for $140 each. Both companies use perpetual inventory systems.

Required

a. What amounts of cost of goods sold did Karlow and Draw record in 20X3?

b. What amount of cost of goods sold must be reported in the consolidated income statement for 20X3?

c. Give the worksheet eliminating entry or entries needed in preparing consolidated financial statements at December 31, 20X3, relating to the inter corporate sale of inventory.

d. Give the worksheets eliminating entry or entries needed in preparing consolidated financial statements at December 31, 20X4, relating to the inter corporate sale of inventory.

e. Give the worksheet eliminating entry or entries need in preparing consolidated financial statements at December 31, 20X4, relating to the inter corporate sale of inventory if Draw had produce the computer desks at a cost of $82 each sold 10,000 desks to Karlow for $94 each in 20X3, with Karlow selling 7,000 desks to unaffiliated companies in 20X3 and the remaining 3,000 in 20X4.

P6-34 Randall corporation

P7-35 Comprehensive Worksheet Problem

Randall Corporation acquired 80% of Sharp Company’s voting shares on January 1, 2004, for $280,000 in cash and marketable securities. At acquisition, Sharp reported net assets of $300,000. Trial balances for the two companies on December 31, 2007, are as follows:

Randall Corporation     Sharp Company
Item                    Debit     Credit     Debit     Credit
Cash                        130,300               10,000
Account receivable                     80,000               70,000
Inventory                        170,000            110,000
Buildings and Equipment              600,000            400,000
Investment in Sharp Company stock         304,000
Cost of goods sold                   416,000            202,000
Depreciation and Amortization                30,000               20,000
Other Expenses                     24,000               18,000
Dividends Declared                     50,000               25,000
Accumulated Depreciation                   310,000            120,000
Accounts Payable                        100,000               15,200
Bonds Payable                        300,000            100,000
Bond Premium                                   4,800
Common Stock                        200,000            100,000
Additional Paid-in-Capital                             20,000
Retained Earnings                        345,000            215,000
Sales                             500,000            250,000
Other Income                          20,400               30,000
Income from Subsidiary           _________            28,000            ________
1,804,300       1,804,300       855,000       855,000

Additional Information

1.     The purchase differential is appropriately assigned to buildings and equipment that had a remaining 10-year economic life at the date of combination.
2.     Randall and Sharp regularly purchase inventory from each other. During 2006, Sharp sold inventory costing $40,000 to Randall Corporation for $60,000, and Randall resold 60% of the inventory in 2006 and 40% in 2007. Also in 2006, Randall sold inventory costing $20,000 to Sharp for 26,000. Sharp resold two-thirds of the inventory in 2006 and one-third in 2007.
3.     During 2007, Sharp sold inventory costing $30,000 to Randall for $45,000, and Randall sold items purchased for $90,000 to Sharp in 2007. Sharp continues to hold all the units purchased from Randall during 2007.
4.     Randall sold equipment originally purchased for $75,000 to Sharp for $50,000 on December 31, 2005. Accumulated depreciation over 12 years of use before the intercorporate sale was $45,000. The estimated remaining life at the time of transfer was 8 years. Straight-line depreciation is used by both companies.
5.     Sharp owes Randall $10,000 on account on December 31, 2007.

Required

a.     Prepare the 2007 journal entries recorded on Randall’s books related to its investment in Sharp if Randall uses the basic equity method.
b.     Prepare all eliminating entries needed to complete a consolidation workpaper as of December 31, 2007.
c.     Prepare a three-part consolidation workpaper as of December 31, 2007.
d.     Prepare, in good form, a consolidate income statement, balance sheet, and retained earnings statement for 2007.