Tern Corporation acquired a 90% interest in Harbor Corporation several years ago
ID: 2571184 • Letter: T
Question
Tern Corporation acquired a 90% interest in Harbor Corporation several years ago when Harbor's book values and fair values were equal to one another. Seperate company income statements for Tern and Harbor for the year ended December 31, 2017 are summarized as follows:
During 2016, Tern sold merchandise that cost $150,000 to Harbor for $220,000. Half of this merchandise remained in Harbor's inventory at December 31, 2016. During 2017, Tern sold merchandise that cost $180,000 to Harbor for $270,000. One-third of this merchandise remained in Harbor's December 31, 2017 inventory. The beggining inventory was sold during 2017.
REQUIRED: Prepare a consolidated income statement for Tern corporation and subsidiary for 2017 by preparing a consolidated worksheet. Please show all work.
Tern Harbor Sales Revenue 1,000,000 600,000 Income from Harbor 85,000 Cost of Goods sold 600,000 300,000 Expenses 200,000 200,000 Net Income 285,000 100,000Explanation / Answer
First We have to Calculate the Profit reduce due to inter company Sales & closing stock holding during 2016.
Sale amount of Merchandise in 2016 $ 220000
Cost of Merchandise in 2016 $ 150000
Peofit on Sale of Merchandise in 2016 $ 70000
Half of the Merchandise in 2016 is in Inventory So Profit of that half Merchandise should be reduce from consolidated Income Statment is $35000 ($70000/2) but Tern Corporation share in this Profit is Only 90% so Actual Profit Reduction will be 90% of 35000 thats come $31500 which will increase the profit of 2017.
* consolidated income statement for Tern corporation and subsidiary for 2017
Net Income of Tern Corporation $ 285,000
Net income of Harbor Corporation(90% Only) $ 90,000
Gross consolidated income of Tern Corporation $ 375,000
Add: Profit of the Opening Inventory of Harbor Corporation not taken in 2016 $ 31,500
Less: Profit of the Clsong Inventory of Harbor Corporation not to take in 2017(W.N1) ($ 27,000)
Net consolidated income of Tern Corporation $ 379,500
W.N 1: Calculate the Profit reduce due to inter company Sales & closing stock holding during 2017.
Sale amount of Merchandise in 2017 $ 270000
Cost of Merchandise in 2017 $ 180000
Peofit on Sale of Merchandise in 2017 $ 90000
One-third of the Merchandise in 2017 is in Inventory So Profit of that One-third Merchandise should be reduce from consolidated Income Statment is $ 30,000 ($ 90,000/3) but Tern Corporation share in this Profit is Only 90% so Actual Profit Reduction will be 90% of 30,000 thats come $ 27,000 which will reduce the profit of 2017.
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