Perry Instruments International purchased 75% of the outstanding common stock of

Question

Perry Instruments International purchased 75% of the outstanding common stock of Standard Systems in 1997 when the book values and fair values of Standard's assets and liabilities were equal. The cost of Perry's investment was equal to 75% of the book value of Standard's net assets. Separate company income statements for Perry and Standard for the year ended December 31, 2014 are summarized as follows:

                                                                           Perry            Standard
Sales Revenue                                              $2,400,000          $800,000
Investment income from Standard                      142,000
Cost of Goods Sold                                     (1,600,000)           (400,000)
Expenses                                                        (450,000)           (200,000)
Net Income                                                      $492,000          $200,000

During 2014, the companies began to manage their inventory differently and worked together to keep their inventories low at each location. In doing so, they agreed to sell inventory to each other as needed at a markup of 10% of cost. Perry sold merchandise that cost $100,000 to Standard for $110,000, and Standard sold inventory that cost $80,000 to Perry for $88,000. Half of this merchandise remained in each company's inventory at December 31, 2014.

Prepare a consolidated income statement for Perry Corporation and Subsidiary for 2014.

Explanation / Answer

Perry   Standard Total Intercompany sales /Cost of sales to be eliminated            110,000              88,000                 198,000 Unrealized profit of inventory balance                5,000                4,000 Perry's share of Unrealized gain of Standard                  3,000 Total Unrealized profit to be eliminated                     8,000 Perry Instruments International   Consolidated Income Statememnt for the period ending Dec 31.2014. Details Perry   Standard Consolidated Sales Revenue        2,400,000           800,000             3,002,000 Investment Income from standard            142,000                       -                              -   Cost of goods sold      (1,600,000)         (400,000)           (1,802,000) Expenses         (450,000)         (200,000)              (650,000) Provision for unrealized profit                   (8,000) Net Income            492,000           200,000                 542,000

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