Ch05 Beams10e TB

(1)

Chapter 5 Test Bank

INTERCOMPANY PROFIT TRANSACTIONS – INVENTORIES

Multiple Choice Questions LO1

1. The material sale of inventory items by a parent company to an affiliated company

a. enters the consolidated revenue computation only if the transfer was the result of arm’s length bargaining.

b. affects consolidated net income under a periodic inventory system but not under a perpetual inventory system.

c. does not result in consolidated income until the merchandise is sold to outside parties.

d. does not require a working paper adjustment if the merchandise was transferred at cost.

LO1

2. Honeyeater Corporation owns a 40% interest in Nectar Company, acquired several years ago at a cost equal to book value and fair value. Nectar sells merchandise to Honeyeater for the first time in 2005. In computing income from the investee for 2005 under the equity method, Honeyeater uses which equation?

a. 40% of Nectar’s income less 100% of the unrealized profit in Honeyeater's ending inventory.

b. 40% of Nectar’s income plus 100% of the unrealized profit in Honeyeater's ending inventory.

c. 40% of Nectar’s income less 40% of the unrealized profit in Honeyeater’s ending inventory.

d. 40% of Nectar’s income plus 40% of the unrealized profit in Honeyeater’s ending inventory.

LO1

3. In situations where there are routine inventory sales between parent companies and subsidiaries, when preparing the consolidation statements, which of the following line items is indifferent to the sales being either upstream or downstream?

a. Consolidated retained earnings. b. Consolidated gross profit.

c. Noncontrolling interest expense. d. Consolidated net income.

(2)

4. The consolidation procedures for intercompany sales are similar for upstream and downstream sales

a. if the merchandise is transferred at cost.

b. under a periodic inventory system but not under a perpetual inventory system.

c. if the merchandise is immediately sold to outside parties. d. when the subsidiary is 100% owned.

Use the following information to answer questions 5 through 9. Eagle Corporation owns 80% of Flyway Inc.’s common stock that was purchased at its underlying book value. The two companies report the following information for 2004 and 2005.

During 2004, one company sold inventory to the other company for $50,000 which cost the transferor $40,000. As of the end of 2004, 30% of the inventory was unsold. In 2005, the remaining inventory was resold outside the consolidated entity.

2004 Selected Data: Eagle Flyway

Sales Revenue $ 600,000 $ 320,000

Cost of Goods Sold 320,000 155,000

Other Expenses 100,000 89,000

Net Income $ 1800,000 $ 76,000

Dividends Paid 19,000 0

2005 Selected Data: Eagle Flyway

Sales Revenue $ 580,000 $ 445,000

Other Expenses 130,000 171,000

Net Income $ 150,000 $ 94,000

Dividends Paid 16,000 5,000

LO2

5. If the sale referred to above was a downstream sale, the total sales revenue reported in the consolidated income statement for 2004 would be?

a. $870,000. b. $880,000. c. $920,000.

(3)

6. If the sale referred to above was a downstream sale, by what amount must Inventory be reduced to reflect the correct balance as of the end of 2004? a. $ 3,000. b. $10,000. c. $14,000. d. $20,000. LO2

7. For 2004, consolidated net income will be what amount if the intercompany sale was downstream?

a. $475,600. b. $476,800. c. $486,400. d. $506,000. LO2

8. If the intercompany sale mentioned above was an upstream sale, what will be the reported amount of total sales revenue for 2005? a. $1,025,000. b. $1,900,000. c. $1,950,000. d. $2,000,000. LO2

9. If the intercompany sale was an upstream sale, the total amount of consolidated cost of goods sold for 2005 will be?

a. $300,000. b. $430,000. c. $470,000. d. $477,000.

(4)

Duck Corporation acquired a 70% interest in Whistle Corporation on January 1, 2005, when Whistle’s book values were equal to their fair values. During 2005, Duck sold merchandise that cost $75,000 to Whistle for $110,000. On December 31, 2005, three-fourths of the merchandise acquired from Duck remained in Whistle’s inventory. Separate incomes (investment income not included) of Duck and Whistle are as follows:

Duck Whistle

Sales Revenue $ 150,000 $ 200,000

Operating Expenses 12,000 15,000

Separate incomes $ 48,000 $ 115,000

LO3

10. The consolidated income statement for Duck Corporation and subsidiary for the year ended December 31, 2005 will show consolidated cost of sales of?

a. $ 50,000. b. $ 76,250. c. $133,750. d. $160,000. LO3

11. Duck’s income from Whistle for 2005 is? a. $54,250.

b. $56,000. c. $62,125. d. $80,500.

(5)

12. Pond Co. a 55%-owned subsidiary of Goose Inc. made the following entry to record a sale of merchandise to Goose:

Accounts Receivable 60,000

Sales Revenue 60,000

All Pond sales are at 125% of cost. One-third of this merchandise remained in the Goose’s inventory at year-end. A working paper entry to eliminate unrealized profits from consolidated inventory would include a credit to Inventory in the amount of

a. $ 4,000. b. $ 5,000. c. $ 8,000. d. $10,000.

Use the following information to answer questions 13, 14, and 15.

Wren Corporation acquired 80% ownership of Arid Incorporated, at a time when Wren’s investment (using the equity method) and Arid’s book values were equal. During 2005, Wren sold goods to Arid for $200,000 making a gross profit percentage of 20%. Half of these goods remained unsold in Arid’s inventory at the end of the year. Income statement information for Wren and Arid for 2005 were as follows:

Wren Arid

Sales Revenue $ 1,000,000 $ 600,000

Operating Expenses 500,000 80,000

Separate incomes $ 250,000 $ 120,000

LO3

13. The 2005 consolidated income statement showed cost of goods sold of

a. $720,000. b. $880,000. c. $900,000. d. $920,000.

(6)

14. The 2005 consolidated income statement showed income from Arid of a. $56,000. b. $76,000. c. $80,000. d. $96,000. LO3

15. The 2005 consolidated income statement showed noncontrolling income of a. $ 2,000. b. $ 8,000. c. $20,000. d. $24,000. LO4

16. On January 1, 2004, Darter Industries acquired an 80% interest in Thermal Company to insure a steady supply of Thermal’s inventory that Darter uses in its own manufacturing businesses. Thermal sold 100% of its output to Darter during 2004 and 2005 at a markup of 120% of Thermal’s cost. Darter had $9,600 of these items remaining in its January 1, 2005 inventory and no items on December 31, 2005. If Darter neglected to eliminate unrealized profits from all intercompany sales from Thermal, consolidated net income for 2005 was

a. overstated by $320. b. understated by $400. c. overstated by $2,400.

d. unaffected because Darter buys 100% of Thermal’s output. Use the following information for questions 17 and 18:

Grebe Company routinely receives goods from its 80%-owned subsidiary, Swamp Corporation. In 2004, Swamp sold merchandise that cost $80,000 to Grebe for $100,000. Half of this merchandise remained in Grebe’s December 31, 2004 inventory. During 2005, Swamp sold merchandise that cost $160,000 to Grebe for $200,000. $62,500 of the 2005 merchandise inventory remained in Grebe’s December 31, 2005 inventory. Selected income statement information for the two affiliates for the year 2005 was as follows:

Grebe Swamp

Sales Revenue $500,000 $400,000

(7)

17. Consolidated cost of goods sold for Grebe and Subsidiary for 2005 were a. $512,000. b. $526,000. c. $522,500. d. $528,000. LO4

18. What amount of unrealized profit did Grebe Company have at the end of 2004? a. $10,000. b. $12,500. c. $50,000. d. $62,500. LO5 19.

3. A parent company regularly sells merchandise to its 70%-ownedsubsidiary. Which of the following statements describes the computation of minority interest income?

a. The subsidiary’s net income times 30%.

b. (The subsidiary’s net income x 30%) + unrealized profits in the beginning inventory – unrealized profits in the ending inventory.

c. (The subsidiary’s net income + unrealized profits in the beginning inventory – unrealized profits in the ending inventory) x 30%.

d. (The subsidiary’s net income + unrealized profits in the ending inventory – unrealized profits in the beginning inventory) x 30%.

LO5

20. Squid Corporation, a 90%-owned subsidiary of Penguin Corporation, sold inventory items to its parent at a $24,000 profit in 2005. Penguin resold one-third of this inventory to outside entities. Squid reported net income of $100,000 for 2005. Minority interest income that will appear in the consolidated income statement for 2005 is

a. $ 8,400. b. $ 9,200. c. $10,000. c. $10,800.

(8)

Exercise 1

Petrel Corporation acquired a 60% interest in Salt Corporation on January 1, 2005, at a cost equal to book value and fair value. Salt reports net income of $880,000 for 2005. Petrel regularly sells merchandise to Salt at 120% of Petrel’s cost. The intercompany sales information for 2004 is as follows:

Intercompany sales at selling price $ 672,000 Value of merchandise remaining

unsold by Salt 132,000

Required:

1. Determine the unrealized profit in Salt’s inventory at December 31, 2004.

2. Compute Petrel’s income from Salt for 2005. LO3&4

Exercise 2

Frigatebird Co. bought 75% of the outstanding voting stock of Cliff Corporation at book value several years ago. Frigatebird sells merchandise to Cliff at 125% above Frigatebird’s cost. Intercompany sales from Frigatebird to Cliff for 2005 were $650,000. Unrealized profits in Cliff’s December 31, 2004 inventory and December 31, 2005 inventory were $27,000 and $38,000, respectively. Cliff reported net income of $900,000 for 2005.

Required:

1. Determine Frigatebird’s income from Cliff for 2005.

2. In General Journal format, prepare consolidation working paper entries to eliminate the effects of the intercompany inventory sales assuming the perpetual inventory method is used.

(9)

Exercise 3

Tern Corporation acquired an 80% interest in Harbor Corporation several years ago when Harbor’s book values and fair values were equal. Separate company income statements for Tern and Harbor for the year ended December 31, 2005 are summarized as follows:

Tern Harbor

Sales Revenue $ 1,000,000 $ 600,000

Income from Harbor 80,000

Cost of Goods Sold ( 600,000 )( 300,000 )

Expenses ( 200,000 )( 200,000 )

Net Income $ 280,000 $ 100,000

During 2004 Tern sold merchandise that cost $120,000 to Harbor for $180,000. Half of this merchandise remained in Harbor’s inventory at December 31, 2004. During 2005, Tern sold merchandise that cost $150,000 to Harbor for $225,000. One-third of this merchandise remained in Harbor’s December 31, 2005 inventory.

Required:

Prepare a consolidated income statement for Tern Corporation and Subsidiary for 2005.

LO3&4 Exercise 4

Egret Corporation acquired an 80% interest in Tick Corporation at book value in 2004. During 2005, Egret sold $148,000 of merchandise to Tick at 160% of Egret’s cost. Tick’s beginning and ending inventories for 2005 were $38,000 and $44,000, respectively. Income statement information for both companies for 2005 is as follows:

Egret Tick

Sales Revenue $ 330,000 $ 180,000

Income from Tick 30,400

Expenses ( 65,000 )( 30,000 )

Net Income $ 105,400 $ 38,000

Required:

Prepare a consolidated income statement for Egret Corporation and Subsidiary for 2005.

(10)

Exercise 5

Ibis Corporation acquired 100% of Lake Co. common stock on January 1, 2003, for $550,000 when the book values of Lake’s assets and liabilities were equal to their fair values and Lake’s stockholders’ equity consisted of $280,000 of Capital Stock and $270,000 of Retained Earnings.

Ibis’ separate income (excluding Lake) was $900,000, 850,000 and 950,000 in 2003, 2004 and 2005 respectively. Ibis sold inventory to Lake during 2003 at a gross profit of $40,000 and 30 percent remained at Lake at the end of the year. The remaining 30 percent was sold in 2004. At the end of 2004, Ibis has $25,000 of inventory received from Lake from a sale of $200,000 which cost Lake $160,000. There are no unrealized profits in the inventory of Ibis or Lake at the end of 2005. Ibis uses the equity method in its separate books. Select financial information for Lake follows:

2003 2004 2005 Sales $ 800,000 $ 850,000 $ 950,000 Cost of Sales 420,000 440,000 500,000 Gross Profit 380,000 410,000 450,000 Operating Expenses 300,000 320,000 380,000 Net Income 80,000 90,000 70,000 Required:

Prepare a schedule to determine Ibis Corporation’s net income for 2003, 2004, and 2005.

(11)

Exercise 6

Bittern Corporation acquired a 70% interest in Reed Corporation at book value several years ago. Reed purchases its entire inventory from Bittern at 140% of Bittern’s cost. During 2005, Bittern sold $160,000 of merchandise to Reed. Reed’s beginning and ending inventories for 2005 were $49,000 and $33,600, respectively. Income statement information for both companies for 2005 is as follows:

Bittern Reed

Sales Revenue $ 400,000 $ 220,000

Income from Reed 75,600

Expenses ( 85,000 )( 40,000 )

Net Income $ 180,600 $ 108,000

Required:

Prepare a consolidated income statement for Bittern Corporation and Subsidiary for 2005.

LO 3&4 Exercise 7

Egret Corporation paid $24,800 for an 80% interest in Plume Corporation on January 1, 2004, at which time Plume’s stockholders’ equity consisted of $15,000 of Common Stock and $6,000 of Retained Earnings. The fair values of Plume Corporation’s assets and liabilities were identical to recorded book values when Egret acquired its 80% interest.

Plume Corporation reported net income of $4,000 and paid dividends of $2,000 during 2004.

Egret Corporation sold inventory items to Plume during 2004 and 2005 as follows:

2004 2005

Egret’s sales to Plume $ 5,000 $ 6,000 Egret’s cost of sales to Plume 3,000 3,500 Unrealized profit at year-end 1,000 1,500

The accounts payable of Plume include $1,500 owed to Egret for inventory purchases.

(12)

may be helpful in completing the consolidation working papers for the year ended December 31, 2005.

Retained

Earnings Investmentin Plume Incomefrom Plume Prior years: Inventory profit $ ( 1,000 ) $( 1,000 ) Current year: Inventory profit-2004 $ $ 1,000 $ 1,000 Inventory profit-2005 $ $( 1,500 ) $(1,500 ) Totals $ ( 1,000 ) $( 1,500 ) $( 500 ) Required:

Financial statements of Egret and Plume appear in the first two columns of the partially completed working papers. Complete the consolidation working papers for Egret Corporation and Subsidiary for the year ended December 31, 2005.

(13)

Consolidation Working Papers for the year ended December 31, 2005

Egret Plume DebitEliminationsCredit BalanceSheet INCOME STATEMENT Sales $ 43,000 $20,000 Income from Plume 7,200 Cost of Sales ( 22,000) ( 8,000) Other expenses ( 12,200) ( 3,000) Net income 16,000 9,000 Retained Earnings 1/1 10,000 8,000 Add: Net income 16,000 9,000 Less: Dividends ( 10,000) ( 5,000) Retained Earnings 12/31 $ 16,000 $12,000 BALANCE SHEET Cash 5,400 3,000 Accounts Receivable-net 14,000 10,000 Dividend Receivable 2,000 Inventories 18,000 8,000 Goodwill Equipment and Buildings-net 24,000 31,000 Investment in Plume 29,600 TOTAL ASSETS $ 93,000 $52,000 LIAB. & EQUITY

Accounts payable 17,500 12,500 Dividend payable 7,000 2,500 Other debt 12,500 10,000 Capital stock 40,000 15,000 Retained Earnings 16,000 12,000 1/1 Noncontrl. Interest 12/31 Noncontrl. Interest

(14)

Exercise 8

Cardinal Corporation acquired a 90% interest in Robin Corporation at book value in 2004. During 2005, Cardinal sold $220,000 of merchandise to Robin at a gross profit rate of 30%. Robin’s beginning and ending inventories for 2005 were $30,000 and $40,000, respectively. Income statement information for both companies for 2005 is as follows:

Cardinal Robin

Sales Revenue $ 830,000 $ 290,000

Income from Robin 36,900

Expenses ( 179,000 )( 52,000 )

Net Income $ 157,900 $ 41,000

Required:

Prepare a consolidated income statement for Cardinal Corporation and Subsidiary for 2005.

LO5

Exercise 9

Plover Corporation acquired 80% of Artic Inc. equity on January 1, 2003, when the book values of Artic’s assets and liabilities were equal to their fair values.

Plover separate income (excluding Artic) was $1,800,000, 1,700,000 and 1,900,000 in 2003, 2004 and 2005 respectively. Plover sold inventory to Artic during 2003 at a gross profit of $48,000 and one quarter remained at Artic at the end of the year. The remaining 25 percent was sold in 2004. At the end of 2004, Plover has $25,000 of inventory received from Artic from a sale of $100,000 which cost Artic $80,000. There are no unrealized profits in the inventory of Plover or Artic at the end of 2005. Plover a uses the equity method in its separate books. Select financial information for Artic follows: 2003 2004 2005 Sales $ 790,000 $ 840,000 $ 940,000 Cost of Sales 420,000 440,000 500,000 Gross Profit 370,000 400,000 440,000 Operating Expenses 300,000 320,000 350,000 Net Income 70,000 80,000 90,000

(15)

Prepare a schedule to determine Plover Corporation’s net income for 2003, 2004, and 2005.

LO5

Exercise 10

On January 1, 2004, Lapwing Corporation purchased 70% of the common stock of Forage Corporation for $320,000 when Forage had Common Stock outstanding of $100,000 and Retained Earnings of $200,000. Any excess differential was attributed to goodwill.

At the end of 2004, Lapwing and Forage had unrealized inventory profits from intercompany sales of $6,000 and $8,000, respectively. These year-end profit amounts were realized in 2005. At the end of 2005 Lapwing held inventory acquired from Forage with a $10,000 unrealized profit. Lapwing reported separate income of $100,000 for 2005 and paid dividends of $30,000. Forage reported separate income of $70,000 for 2005 and paid dividends of $20,000.

Required:

(16)

SOLUTIONS

Multiple Choice Questions

1. c 2. c 3. b 4. d 5. a 2004 combined sales $920,000 Less: 2004 intercompany sales ( 50,000 ) Consolidated sales $870,000 6. a Selling price $ 50,000

Less: Cost of sales 40,000

Original unrealized profit 10,000

Unsold percentage 30% Unrealized profit $ 3,000 7. b 8. a Combined 2005 sales $ 1,025,000 Less: 2005 intercompany sales 0 Consolidated sales $ 1,025,000

9. d Combined cost of sales $ 480,000

Less: 2005 intercompany

sales 0

Less: Unrealized profit in the 2005 beginning

tory from 2004 ( 3,000 )

Plus: Unrealized profit in

2005 ending inventory 0

(17)

Less: Intercompany sales revenue ( 110,000 ) Plus: Unrealized profit taken out

of inventory (75%)x(35,000) = 26,250 Consolidated cost of sales $ 76,250 11. a ($115,000 x 70%) - $26,250 = $ 54,250

12. a Selling price $ 60,000

Less: Cost of sales ( 48,000 )

Unrealized profit 12,000 Unsold fraction 1/3 Credit to Inventory $ 4,000 13. a 500,000+400,000-200,000+20,000 14. b 120,000*.8-200,000*.2*.5 15. d Downstream situation

16. a It will be overstated by the amount of the minority interests’ share of the $1,600 of profit margin in the $9,600 of materials carried over to 2005 = (20% x

$1,600) = $ 320

17. c Grebe plus Swamp’s separate cost of goods sold = $400,000

+ $320,000 = $ 720,000

Less: Intercompany sales = ( 200,000 ) Adjust: Profit +12,500-10,000 = 2,500 Consolidated COGS = $ 522,500 )

(18)

20. a Minority interest income:

Squid’s reported income $ 100,000 Less: Unrealized profits in the

ending inventory ( 16,000 )

Squid’s adjusted income $ 84,000

Minority interest percentage 10%

(19)

Requirement 1

Unrealized profit in inventory:

$132,000 – ($132,000/1.2) = $ 22,000

Requirement 2

Income from Salt for 2005:

Share of Salt’s income ($880,000 x 60%) $ 528,000 Less: Unrealized profit in ending inventory ( 22,000

)

Income from Salt $ 506,000

Exercise 2 Requirement 1 Income from Cliff:

Share of Cliff’s reported net income

$900,000 x 75% = $ 675,000

Add: Unrealized profit in beginning inventory 27,000 Less: Unrealized profit in ending inventory ( 38,000

)

Income from Cliff $ 664,000

)

Requirement 2

Debit Credit

Sales Revenue 650,000

Cost of Goods Sold 650,000

To eliminate intercompany sales and purchases

Investment in Cliff 27,000

To recognize previously deferred unrealized profits from the beginning inventory

Inventory 38,000

To eliminate intercompany profit in the ending inventory from cost of goods sold and inventory

(20)

Tern Corporation and Subsidiary Consolidated Income Statement for the year ended December 31, 2005

Sales (combined $1,600,000 - $225,000 intercompany $ 1,375,000

Cost of Goods Sold (see below) ( 670,000

)

Expenses ( 400,000

)

Minority Interest ( 20,000

)

Consolidated net income $ 285,000

Consolidated cost of goods sold computation:

Combined cost of sales ($600,000 + $300,000) $ 900,000

Less: Intercompany sales ( 225,000

)

Less: Unrealized profit in beginning inventory

($180,000 - $120,000) x 1/2 ( 30,000

₎

Add: Unrealized profit in ending inventory

($225,000 - $150,000) x 1/3 25,000

Consolidated Cost of Goods Sold $ 670,000

Exercise 4

Egret Corporation and Subsidiary Consolidated Income Statement for the year ended December 31, 2005

Sales (combined $330,000 + $180,000 - $148,000) $ 362,000

)

Expenses ( 95,000

)

($38,000 – ($38,000/1.6) ( 14,250

)

($44,000 – ($44,000/1.6) 16,500

(21)

2003 2004 2005 Ibis’s separate income $ 900,000 $ 850,000 $ 950,000 Add: Lake’s reported net income 80,000 90,000 70,000 Unrealized profit in 2003 income ( 12,000 ) 12,000

Unrealized profit in 2004 income ( 5,000 ) 5,000

Consolidated net income $ 968,000 $ 947,000 $ 1,025,000

Exercise 6

Preliminary computations:

Unrealized profit in beginning inventory equals:

$49,000 – ($49,000/1.4) = $ 14,000

Unrealized profit in ending inventory:

$33,600 – ($33,600/1.4) = $ 9,600

Consolidated net income:

Sales (combined $620,000 - $160,000 intercompany $ 460,000

)

Expenses ( 125,000

)

Less: Unrealized profit in beginning inventory ( 14,000

)

Add: Unrealized profit in ending inventory 9,600

(22)

Egret Corporation and Subsidiary Consolidation Working Papers for the year ended December 31, 2005

Egret Plume DebitEliminationsCredit Cntrl.Non- BalanceSheet INCOME STATEMENT Sales $ 43,000 $20,000 b $6,000 $57,000 Income from Plume 7,200 ae 500 6,700 Cost of Sales ( 22,000) ( 8,000) d 1,500 bc 6,000 1,000 ( 24,500) Other expenses ( 12,200) ( 3,000) ( 15,200) Minority income 1,800 ( 1,800) Net income 16,000 9,000 15,500 Retained Earnings 1/1 10,000 8,000 af 1,000 8,000 9,000

Add: Net income 16,000 9,000 15,500

Less: Dividends ( 10,000) ( 5,000) e 4,000 (1,000) ( 10,000) Retained Earnings 12/31 $ 16,000 $12,000 $14,500 BALANCE SHEET Cash 5,400 3,000 8,400 Net Receivables 14,000 10,000 h 1,500 22,500 Dividend Receivable 2,000 g 2,000 Inventories 18,000 8,000 d 1,500 24,500 Goodwill f 8,000 8,000 Plant assets-net 24,000 31,000 55,000 Investment in Plume 29,600 c 1,000 ae f 1,500 2,700 26,400 TOTAL ASSETS $ 93,000 $52,000 $118,400

LIAB. & EQUITY

Accounts payable 17,500 12,500 h 1,500 28,500 Dividend payable 7,000 2,500 g 2,000 7,500 Other debt 12,500 10,000 22,500 Capital stock 40,000 15,000 f 15,000 40,000 Retained Earnings 16,000 12,000 14,500 1/1 Noncntrl. Interest f 4,600 4,600 12/31 Noncntrl.

(23)

Cardinal Corporation and Subsidiary Consolidated Income Statement for the year ended December 31, 2005

Sales (combined $830,000 + $290,000 - $220,000) $ 900,000

)

Expenses ( 231,000

)

($30,000 x .30) ( 9,000

₎

($40,000 x .30) 12,000

Consolidated Cost of Goods Sold $ 510,000

Exercise 9

2003 2004 2005

Plover’s separate income $ 1,800,000 $ 1,700,000 $ 1,900,000

Add: Artic’s net income 70,000 80,000 90,000

Unrealized profit in 2003 income ( 12,000 ) 12,000 Unrealized profit in 2004 income ( 5,000 ) 5,000 Subtract: Noncontrolling Interest ( 14,000 ) ( 15,000 ) ( 17,000 )

Consolidated net income $ 1,844,000 $ 1,772,000 $ 1,978,000 2004 Noncontrolling Interest

=(80,000-5,000)*.2

2005 Noncontrolling Interest =(90,000+5,000)*.2

(24)

Lapwing separate income: $ 100,000 Add: Realized profit in beginning

inventory (given) 6,000

Less: Unrealized profit in ending

inventory (given) ( 10,000 )

Lapwing adjusted separate income $ 96,000

Forage separate income:

Separate income as reported $ 70,000

Add: Realized beginning inventory profit 8,000

Equals: Adjusted Forage income 78,000

Majority percentage 70%

Income from Forage 54,600 54,600