9, Pez owns 30% of Rollo. In 2012, Pez sells inventory costing $100,000 to Rollo
ID: 2341408 • Letter: 9
Question
9, Pez owns 30% of Rollo. In 2012, Pez sells inventory costing $100,000 to Rollo for $150,000. At December 31, 2012 $60,000 of this inventory was still held by Rollo and is sold in 2013. In 2013, Pez sells inventory costing $200,000 to Rollo for $250,000. At December 31, 2013 $60,000 of this inventory is still held by Rollo. In 2013, Rollo reports net income of $80,000. How much equity income is reported by Pez in 2013? 10. Harry owns 25% of David. On January 1, 2012 Harry's investment account has a balance of $500,000. On that date, Harry sells 30% of its investment for $200,000. a. What is the balance in the investment account after sale b. What is the gain or loss on sale recorded by Harry 11. On January 1, 2012 Roberts purchases 100% of Smith for $800,000 cash. At acquisition date, Roberts had book value of net assets of $600,000 and Smith had a book value of net assets of $700,000. Roberts owned a building with a book value of $200,000 and a fair value of $300,000 and Smith owned a building with a book value of $100,000 and a fair value of $300,000. How much is consoldatedExplanation / Answer
Question 9
First, we need to compute the unrealised gain on inventory held by Rollo for inventory sold on 2013-
Selling price = $ 250,000
Cost price = $ 200,000
Profit = $ 250000-200000 = $ 50,000
Profit % on selling price = 50000/250000 = 20%
Inventory available in Rollo's stock = $ 60,000
Unrealised profit on Rollo's inventory = 20% of $ 60,000 = $ 12,000
Share of Pez on unrealised profit = 30% of $ 12,000 = $ 3,600
Net income of Rollo = $ 80,000
(-) Pez share on unreal pft = ($ 3,600)
Equity income to be reported = $ 76,400
Since, the question asks to compute net equity income for 2013, the intra-branch transaction on 2012 will not be considered.
Question 10
a. Investment balance as on Jan 1, 2012 = $ 500,000
(-) Sale of 30% investment (500000*30%) ($ 150,000)
Investment balance after sale = $ 350,000
b. Consideration received on sale of investments = $ 200,000
(-) Cost of investment sold (30% of $ 500,000) ($ 150,000)
Gain on sale of investment = $ 50,000
Question 11
Book value of Net assets of Smith = $ 600,000
(+) Incremental fair value of Smith's building (300000-100000) = $ 200,000
Fair Value of Smith's Net Assets = $ 800,000
Consideration received for acquisition = $ 700,000
(-) Fair value of Net assets of Smith ($ 800,000)
Goodwill on acquistion = $ 100,000
Note- The revaluation gain of $ 100,000 (300000-200000) on building of Robert's shall not be adjusted against the goodwill purchased on acquistion of Smith's business.
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