Computations (upstream and downstream sales) Comparative income statements of So

Question

Computations (upstream and downstream sales) Comparative income statements of Son Corporation for the calendar years 2016, 2017, and 2018 are as follows (in thousands): 2016 2017 2018 Sales 48000 51000 57000 Cost of Sales 25200 26400 30000 Gross profit 22800 24600 27000 Operating expenses 18000 19200 22800 Net income 4800 5400 4200 1. Son was a 75 percent–owned subsidiary of Pop Corporation throughout the 2016–2018 period. Pop’s separate income (excludes income from Son) was $21,600,000, $20,400,000, and $24,000,000 in 2016, 2017, and 2018, respectively. Pop acquired its interest in Son at its underlying book value, which was equal to fair value on July 1, 2015. 2. Pop sold inventory items to Son during 2016 at a gross profit to Pop of $2,400,000. Half the merchandise remained in Son’s inventory at December 31, 2016. Total sales by Pop to Son in 2016 were $6,000,000. The remaining merchandise was sold by Son in 2017. 3. Pop’s inventory at December 31, 2017, included items acquired from Son on which Son made a profit of $1,200,000. Total sales by Son to Pop during 2017 were $4,800,000. 4. There were no unrealized profits in the December 31, 2018, inventories of either company. 5. Pop uses the equity method of accounting for its investment in Son. Required: 1. Prepare a schedule showing Pop’s income from Son for the years 2016, 2017, and 2018. 2. Compute Pop’s net income for the years 2016, 2017, and 2018. 3. Prepare a schedule of consolidated net income for Pop Corporation and Subsidiary for the years 2016, 2017, and 2018, beginning with the separate incomes of the two affiliates and including non-controlling interest computations. Computations (upstream and downstream sales) Comparative income statements of Son Corporation for the calendar years 2016, 2017, and 2018 are as follows (in thousands):

Explanation / Answer

1. Pop's income from son for the year 2016 is 75% of 4800000 i.e.3600000

2017 is 75% of 5400000 i.e. 4050000

2018 is 75% of 4200000 i.e. 3150000

2.Pop's net income for the year 2016 is 21600000+ 3600000=25200000

2017 is 20400000+4050000=24450000

2018 is 24000000+3150000=24150000

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