[kutelilprincess]

The problem asks:

Holiday Bakery owns 60% 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 12/31/x8, Holiday had 20,000 bags of flour purchased from Farmco Products on hand.
Farmco prices its sales at cost plus 50% of cost for profit.
Holiday, which purchased all its flour from Farmco in 20x8, had no inventory on 01/01/x8
Holiday Bakery reported income from its baking operations of $400,000
Farmco Products reported net income of $150,000 for 20x8


Question:
1) Compute the amount reported as cost of goods sold in 20x8 consolidated income statement - is it 720,000?
2) Give the workpaper eliminating entry or entries required to remove the effects of the intercompany sale in preparing consolidated statements at the end of 20x8
3) Compute the amount reported as consolidated net income for 20x8

[Curlyben]

Please refer to This thread

[kutelilprincess]

I'm so sorry, Can someone check if I am going the correct route? Thanks.

Compute the amount as COGS in the 20x8 consolidated income statement
Holiday Farmco Unadjusted Consolidated
Sales - 900,000 900,000 900,000
COGS (720,000) (600,000) (1,320,000) (720,000)
Gross Profit (720,000) 300,000 (420,000) 180,000


Give the workpaper eliminating entries required to remove the effects of the intercompany sale
Eliminate income from subsidiary
Dr. Income from subsidiary 90,000
Cr. Dividends declared n/a
Cr. Investment in Farmco stock 90,000
(150,000*60%)

Assign income to non-controlling interest
Dr. Income to noncontrolling interest 60,000
Cr. Dividends declared n/a
Cr. Non-controlling interest 60,000
(150,000*40%)

Eliminate beginning investment balance
Dr. Common stock - Farmco
Dr. Retained earnings, January 1
Cr. Investment in Farmco stock
Cr. Noncontrolling interest

Eliminate intercompany upstream sale of inventory
Dr. Sales 720,000
Cr. Cost of goods sold 480,000
Cr. Inventory 240,000