[Solved] Placid Lake Corporation acquired 80 percent of the outstanding voting stock of Scenic, Inc., on January 1, 2014, when Scenic had a net book value of $570,000.
| Placid Lake Corporation acquired 80 percent of the outstanding voting stock of Scenic, Inc., on January 1, 2014, when Scenic had a net book value of $570,000. Any excess fair value was assigned to intangible assets and amortized at a rate of $5,000 per year. |
| Placid Lake’s 2015 net income before consideration of its relationship with Scenic (and before adjustments for intra-entity sales) was $470,000. Scenic reported net income of $280,000. Placid Lake declared $160,000 in dividends during this period; Scenic paid $57,000. At the end of 2015, selected figures from the two companies’ balance sheets were as follows: |
| Placid Lake | Scenic | |||||
| Inventory | $ | 310,000 | $ | 107,000 | ||
| Land | 770,000 | 370,000 | ||||
| Equipment (net) | 570,000 | 470,000 | ||||
| During 2014, intra-entity sales of $160,000 (original cost of $76,000) were made. Only 20 percent of this inventory was still held within the consolidated entity at the end of 2014. In 2015, $260,000 in intra-entity sales were made with an original cost of $76,000. Of this merchandise, 30 percent had not been resold to outside parties by the end of the year. |
| Each of the following questions should be considered as an independent situation for the year 2015. |
| a. | What is consolidated net income for Placid Lake and its subsidiary? |
| b. | If the intra-entity sales were upstream, how would consolidated net income be allocated to the controlling and noncontrolling interest? |
| c. | If the intra-entity sales were downstream, how would consolidated net income be allocated to the controlling and noncontrolling interest? |
| d. | What is the consolidated balance in the ending Inventory account? |
| e. | Assume that no intra-entity inventory sales occurred between Placid Lake and Scenic. Instead, in 2014, Scenic sold land costing $47,000 to Placid Lake for $84,000. On the 2015 consolidated balance sheet, what value should be reported for land? |
| f-1. | Assume that no intra-entity inventory or land sales occurred between Placid Lake and Scenic. Instead, on January 1, 2014, Scenic sold equipment (that originally cost $160,000 but had a $77,000 book value on that date) to Placid Lake for $104,000. At the time of sale, the equipment had a remaining useful life of five years. What worksheet entries are made for a December 31, 2015, consolidation of these two companies to eliminate the impact of the intra-entity transfer? (If no entry is required for a transaction/event, select “No journal entry required” in the first account field.) |
1.Prepare entry *TA
2. Prepare entry ED
| f-2. | For 2015, what is the noncontrolling interest’s share of Scenic’s net income? |
Expert Answer
Answer to Placid Lake Corporation acquired 80 percent of the outstanding voting stock of Scenic, Inc., on January 1, 2014, when Scenic had a net book value of $570,000…..
OR
