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GVen
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| Posted: 25 Apr 2011 at 17:59 | IP Logged
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My question from the below is could you figure out the carrying amount of the inventory using your knowledge of what interco COGS was and what the inventory was? or do you have to build from A/R and interco Sales?
Question CPA-00464
Selected information from the separate and consolidated balance sheets and income statements of Pard, Inc. and its subsidiary, Spin Co., as of December 31, Year 1, and for the year then ended is as follows:
The three numbers are in the order of: Pard, Spin, Consolidated
Balance sheet accounts
Accounts receivable $ 26,000 $ 19,000 $ 39,000
Inventory 30,000 25,000 52,000
Investment in Spin 67,000 - -
Goodwill - - 30,000
Noncontrolling interest - - 10,000
Stockholders, equity 154,000 50,000 154,000
Pard Spin Consolidated
Income statement accounts
Revenues $200,000 $140,000 $308,000
Cost of goods sold 150,000 110,000 231,000
Gross profit 50,000 30,000 77,000
Equity in earnings of Spin 11,000 - -
Net income 36,000 20,000 40,000
Additional information: During Year 1, Pard sold goods to Spin at the same markup on cost that Pard uses for all
sales. At December 31, Year 1, Spin had not paid for all of these goods and still held 37.5% of them in inventory.
In Pard's consolidated balance sheet, what was the carrying amount of the inventory that Spin purchased from
Pard?
a. $3,000
b. $6,000
c. $9,000
d. $12,000
Explanation
Choice "c" is correct, $9,000. Pard has a gross profit percentage of 25% and a cost of goods sold percentage of
75%.
Intercompany revenues totaled $32,000:
Revenue - Pard $ 200,000
Revenue - Spin 140,000
Revenue before interco eliminations $ 340,000
- Consolidated revenue 308,000
Intercompany revenue $ 32,000
Therefore, intercompany cost of goods sold was $32,000 x 75% = $24,000 and the carrying amount of the
inventory purchased from Pard was $9,000 ($24,000 x 37.5%) on the consolidated balance sheet.
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CPA10
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| Posted: 25 Apr 2011 at 19:37 | IP Logged
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The way I solved this was with the Inventory & GP ratio info.
Pard has:
Rev 200
COGS (150)
____________
GP 50 =>GP Ratio = .25
Consolidated Inv is reduced by 3000. meaning that there was an elimination entry for the profit as well.
if the porfit was calculated to be 3000, then we can calculate the sale to have been 12000 (3000/.25).
therefore Inv CV = 9000 (Sale 12000 - Invent 9000 = 3000 Profit on intercompany sale that required elimination)
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GVen
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| Posted: 27 Apr 2011 at 08:52 | IP Logged
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great straightforward explanation - your answer is much easier to understand and pulls together how i thought this should work.
thanks!!!
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leslie4real
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| Posted: 04 Feb 2012 at 18:01 | IP Logged
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I spent a good 2 hours trying to understand this question, the Becker explanation didn't make sense, and the Wiley gave the 3000/.25 formula but did not really explain the reasoning behind it.
Your post make sense and i finally understand.
P.S. I don't usually spend that much time on a question, but this one really bugged me to the core.
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pass.or.die.try
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| Posted: 19 Feb 2012 at 19:45 | IP Logged
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thanks a million,,
A lot of the Becker explanations are sh!tttty. Apparently there are a few people that script the answers because some of the answers are really thorough and some have no explantions at all. And the section on intercompany transaction have no explanations as to how they come up with the answer, just add these numbers and subtract those numbers..
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Topic: Interco elimination question
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