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Question: computing the amount of investment income and preparing i consolidation...

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Computing the amount of investment income and preparing [I] consolidation entries-Cost method Assume that a wholly owned subsidiary sells inventory to the parent company. The parent company ultimately, sells the inventory to customers outside of the consolidated group. You have compiled the following data for the years ending 2015 and 2016: % Inventory Subsidiary Net Intercompany Remaining at Receivable Income Inventory Sales Gross Profit % 34% 30% End of Year (Payable) $30,000 $24,000 2016 $600,000 $90,000 15% 2015 $480,000 $60,000 1896 Assume that inventory not remaining at the end of the year was sold outside of the consolidated group during the year. The subsidiary paid $450,000 in dividends during 2016 a. How much Income (loss) from subsidiary should the parent report in its pre-consolidation income statement the year ending 2016 assuming that it uses the cost method of accounting for its Equity Investment? b. Prepare the required [I] consolidation entries for 2016 Consolidation Journal Description Debit Credit [cogs] Investment in subsidiary Cost of goods sold To recognize prior year profit on intercompany sales. [Isales]Sales Inventory To eliminate intercompany sales. [lcogs] Cost of goods sold Investment in subsidiary 0 To defer current period profit on intercompany sales. lpay Accounts paya Accounts receivable 0

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