Problem 1

1 Sales 50,000
Cost of sales 50,000
To eliminate intercompany sales

Cost of sales 10,000

Inventory 10,000
To eliminate unrealized profit in ending inventory

Retained earings - parent 5,000

Cost of sales 5,000
To recognized realized profit in beginning inventory

2 Reported sales 1,400,000

Intercompany sales (50,000)
Consolidated sales 1,350,000

3 Reported cost of sales 680,000

Intercompany sales (50,000)
Unrealized profit in ending inventory (5,000)
Realized profit in beginning inventory 10,000
Consolidated sales 635,000

Problem 2
1 Consideration 1,620,000
NCI (Proportionate) 330,000
Total 1,950,000
FMV of net assets 1,650,000
Goodwil 300,000

Goodwill, 01/01/2021 300,000

Impairment Loss, 2021 (20,000)
Impairment Loss, 2022 (30,000)
Goodwill, 12/31/2022 250,000

2 P Co. S. Co
Reported net income 1,000,000 500,000
Dividend income -64,000
Additional depreciation (50,000 / 4 years) -12,500
Realized profit on beginning inventory - downstream* 3,200
Unrealized profit on ending inventory - downstream** -6,000
Adjusted net income 933,200 487,500
Share of parent 390,000 -390,000
Impairment Loss -30,000
Consolidated net income 1,293,200 97,500

*RPBI: 19,200 x 20/120

**UPEI: 36,000 x 20/120

Problem 3
 1 A. Co. B. Co
Reported net income 376,250 109,375
Dividend income -52,500
Realized profit on beginning inventory - upstream* 3,500
Unrealized profit on ending inventory - upstream** -6,300
Adjusted net income 323,750 106,575
Share of parent 63,945 -63,945
Consolidated net income 387,695 42,630

*RPBI: (87,500 x 20%) x 25/125

**UPEI: (105,000 x 30%) x 25/125

2 Reported Sales 1,531,250

Intercompany sales - 2022 (210,000)
Consolidated sales 1,321,250

Reported Cost of Sales 918,750

Intercompany sales - 2022 (210,000)
Realized profit on beginning inventory - upstream* (3,500)
Unrealized profit on ending inventory - upstream** 6,300
Consolidated cost of sales 711,550

Consolidated gross profit 609,700

Problem 4
1 Black Corp.
Reported net income 560,000
Realized profit on beginning inventory - upstream* 14,250
Adjusted net income 574,250
NCI rate 40%
NCINIS 229,700

RPBI: (285,000 x 30%) x 20/120

2 Realized profit on beginning inventory - upstream 14,250

NCI rate 40%
Realized profit attributable to NCI 5,700

Problem 5
1& 2 Pet Sam
Reported net income 360,000 155,000
Dividend income -42,000
Unrealized loss on sale - upstream 21,000
Realized loss on sale - upstream (21,000/5) x 8/12 -2,800
Unrealized gain on sale - downstream -45,000
Realized gain on sale - downstream (45,000/8) x 4/12 1,875
Adjusted net income 274,875 173,200
Share of parent 138,560 -138,560
Consolidated net income 413,435 34,640
 3 NCI, beg (570,000 + 490,000) x 20% 212,000
Net income attributable to NCI 34,640
Dividends received by the NCI -10,500
NCI, end 236,140

4 Book Value of equipment 105,000 300,000

Depreciation for 2022
(105,000 / 5) x 8/12 (14,000)
(300,000 / 8) x 4/12 (12,500)
Carrying Value, 12/31/2022 91,000 287,500

OR

Selling price of equipment 84,000 345,000

Depreciation for 2022
(84,000 / 5) x 8/12 (11,200)
(345,000 / 8) x 4/12 (14,375)
Unrealized loss on sale - upstream 21,000
Realized loss on sale - upstream (21,000/5) x 8/12 (2,800)
Unrealized gain on sale - downstream (45,000)
Realized gain on sale - downstream (45,000/8) x 4/12 1,875
Carrying Value, 12/31/2022 91,000 287,500

Problem 6
1 P Co. S Co.
Reported Cost of Sales
P: (7,540,000 / 140%); S: (4,760,000 / 140%) 5,385,714 3,400,000
Fair value adjustment for the inventory 200,000
Intercompany sales - 2022 (1,190,000) (602,000)
Unrealized profit on ending inventory - downstream
(1,190,000 x 30%) x 40/140 102,000
Unrealized profit on ending inventory - upstream
(602,000 x 20%) x 40/140 34,400
Consolidated sales 4,297,714 3,032,400

Consolidated cost of sales 7,330,114

2 Pet Sam
Sales 7,540,000 4,760,000
Cost of sales -5,385,714 -3,400,000
Dividend income 35,000
OPEX -1,508,000 -952,000
Reported net income 681,286 408,000
Dividend income -35,000
Fair value adjustment for the inventory -200,000
Unrealized profit on ending inventory - downstream -102,000
Unrealized profit on ending inventory - upstream -34,400
Adjusted net income 544,286 173,600
Share of parent 138,880 -138,880
Consolidated net income 683,166 34,720
 NCI, beg (1.8M / 80%) x 20% 450,000
Net income attributable to NCI 34,720
Dividends received by the NCI -8,750
NCI, end 475,970

Problem 7
Correction: (year sold to outsider in 2021 should be 2023) - given in the table

Reported Sales 6,030,000

Intercompany sales - 2022 (1,870,000)
Consolidated sales 4,160,000

Reported Cost of Sales 3,560,000

Intercompany sales - 2022 (1,870,000)
Realized profit on beginning inventory - downstream* (60,000)
Unrealized profit on ending inventory - upstream** 35,000
Unrealized profit on ending inventory - downstream*** 24,000
Consolidated cost of sales 1,689,000

*200,000 x 30% 60,000

**100,000 x 35% 35,000
***104,000 x 30/130 24,000

Worship Faithful
Sales 4,150,000 1,880,000
Cost of sales -2,230,000 -1,330,000
Dividend income 70,000 60,000
OPEX -920,000 -310,000
Reported net income 1,070,000 300,000
Dividend income -70,000
Realized profit on beginning inventory - downstream 60,000
Unrealized profit on ending inventory - upstream -35,000
Unrealized profit on ending inventory - downstream -24,000
Adjusted net income 1,036,000 265,000
Share of parent 185,500 -185,500
Consolidated net income 1,221,500 79,500

Problem 8
Reported Sales 8,000,000
Intercompany sales - 2022 (1,200,000)
Consolidated sales 6,800,000

Reported Cost of Sales 4,800,000

Intercompany sales - 2022 (1,200,000)
Unrealized profit on ending inventory - downstream
(60,000 x 20/120) 10,000
Consolidated cost of sales 3,610,000

Consolidated gross profit 3,190,000

Problem 9
1 Reported net income, Sure Corp. (subsidiary) 300,000
Realized profit on beginning inventory - downstream
(150,000 x 125/225) 83,333
Unrealized profit on ending inventory - upstream (111,111)
(200,000 x 125/225)
Adjusted profit 272,222
NCI rate 25%
NCINIS 68,056

2 Ending inventory, Pretty Corp. 500,000

Ending inventory, Sure Corp. 200,000
Unrealized profit on ending inventory - downstream
(60,000 x 20/120) (10,000)
Unrealized profit on ending inventory - upstream
(200,000 x 125/225) (111,111)
Consolidated ending inventory 578,889

Problem 10
Flash Arrow
Reported net income 500,000 200,000
Dividend income -35,000
Unrealized gain on sale - upstream (360,000 - 300,000) -60,000
Realized gain on sale - upstream (60,000/6) 10,000
Unrealized loss on sale - downstream 50,000
Realized loss on sale - downstream (50,000/6) x6/12 -4,167
Adjusted net income 510,833 150,000
Share of parent 105,000 -105,000
Consolidated net income 615,833 45,000

Net income attributable to parent 615,833

Net income attributable to NCI 45,000

Problem 11
P Co. S Co.
Reported net income 300,000 200,000
Dividend income -40,000
Unrealized gain on sale - downstream (120k - 50k) -70,000
Realized gain on sale - downstream (70,000/10) 7,000
Adjusted net income 197,000 200,000
Share of parent 160,000 -160,000
Consolidated net income 357,000 40,000

Net income attributable to parent 357,000

Net income attributable to NCI 40,000
Consolidated net inocme 397,000

NCI, beg (1.1M x 20%) 220,000

Net income attributable to NCI 40,000
 Dividends received by the NCI -100,000
NCI, end 160,000

Problem 12
Rapids Mock
Reported net income 2,880,000 1,240,000
Dividend income -336,000
Unrealized loss on sale - upstream 168,000
Realized loss on sale - upstream (168,000/5) x 8/12 -22,400
Unrealized gain on sale - downstream -360,000
Realized gain on sale - downstream (360,000/8) x 4/12 15,000
Adjusted net income 2,199,000 1,385,600
Share of parent 1,108,480 -1,108,480
Consolidated net income 3,307,480 277,120

1 Net income attributable to parent 3,307,480

Net income attributable to NCI 277,120
Consolidated net inocme 3,584,600

2 NCI, beg (4,560,000 + 3,920,000) x 20% 1,696,000

Net income attributable to NCI 277,120
Dividends received by the NCI -84,000
NCI, end 1,889,120

Problem 13

Parco Slack
Reported net income 6,000,000 2,400,000
Dividend income -576,000
Undervalued PPE (900,000/3) -300,000
Realized profit on beginning inventory - upstream 150,000
Unrealized profit on ending inventory - downstream -600,000
Adjusted net income 4,824,000 2,250,000
Share of parent 1,800,000 -1,800,000
Impairment Loss -192,000 -48,000
Consolidated net income 6,432,000 402,000

Net income attributable to parent 6,432,000

Net income attributable to NCI 402,000
Consolidated net inocme 6,834,000

Problem 14

P. Co S Co.
Reported net income 1,450,000 800,000
Dividend income -122,500
Undervalued inventories -150,000
Undervalued PPE (600,000/5) -120,000
Unrealized gain on sale - upstream (200,000 - 120,000) -80,000
Realized gain on sale - upstream (80,000/4) x6/12 10,000
 Unrealized profit on ending inventory - downstream -25,000
Unrealized profit on ending inventory - upstream -29,167
Adjusted net income 1,302,500 430,833
Share of parent 301,583 -301,583
Impairment Loss -180,000 -45,000
Consolidated net income 1,424,083 84,250

NCI@FV NCI@Prop
Consideration (3.5M shares; 700k cash) 4,200,000 4,200,000
Non-controlling interest 1,675,000 1,500,000
FMV of net assets acquired (5,000,000) (5,000,000)
Goodwill 875,000 700,000

Ratio of goodwill (basis of alloction of impairment)

Goodwill attributable to parent 700,000 80%
Goodwill attributable to NCI (875,000 - 700,000) 175,000 20%
875,000 100%

RE, parent 5,450,000

Net income attributable to parent 1,424,083
Dividends declared by the parent -400,000
Consolidated RE 6,474,083

NCI, beg 1,675,000

Net income attributable to NCI 84,250
Dividends received by the NCI -52,500
NCI, end 1,706,750

Problem 15

Issue Intrigue
Reported net income 560,000 45,000
Dividend income
Gain on bargain purchase 320,000
Unrealized loss on sale - upstream 40,000
Realized loss on sale - upstream (40,000/5) x6/12 -4,000
Adjusted net income 880,000 81,000
Share of parent 64,800 -64,800
Impairment Loss 0 0
Consolidated net income 944,800 16,200

Reported net income of Intrigue for consolidation purposes

Reported net income 130,000
Add: Loss on intercompany sale of PPE 40,000
Net income from operation 170,000
Prorate for 6 months x6/12
85,000
Less: Loss on intercompany sale of PPE 40,000
Reported net income of Intrigue for consolidation purposes 45,000
Problem 16

1 Reported Sales 39,000,000

Intercompany sales - 2022 (4,000,000)
Consolidated sales 35,000,000

Reported Cost of Sales 23,400,000

Intercompany sales - 2022 (4,000,000)
Realized profit on beg inventory - downstream (20,000) (100,000 x 25/125)
Realized profit on beg inventory - upstream (60,000) (240,000 x 25%)
Unrealized profit on ending inventory - downstream 8,000 (40,000 x 25/125)
Unrealized profit on ending inventory - upstream 40,000 (160,000 x 25%)
Consolidated cost of sales 19,368,000

Consolidated gross profit 15,632,000

Power Solar
Reported net income 4,000,000 1,822,000
Dividend income 0
Realized profit on beg inventory - downstream 20,000
Realized profit on beg inventory - upstream 60,000
Unrealized profit on ending inventory - downstream -8,000
Unrealized profit on ending inventory - upstream -40,000
Realized gain on sale of land 500,000
Unrealized loss on sale of photocopier 18,000
Realized loss on sale of photocopier (18,000/3) x (6/12) -3,000

Adjusted net income 4,512,000 1,857,000

Share of parent 1,671,300 -1,671,300
Impairment Loss 0 0
Consolidated net income 6,183,300 185,700

2 Net income attributable to parent 6,183,300

3 Net income attributable to NCI 185,700
Consolidated net income 6,369,000

4 Reported OPEX, Power 6,000,000

Reported OPEX, Solar 3,800,000
Adjustment on depreciation (realized loss) 3,000
Consolidated OPEX 9,803,000

Problem 17

Reported net income, So Company 80,000

Unrealized profit on ending inventory - upstream (2,500) (37,500 / 75%) x 25% x 20%
77,500
NCI rate 15%
11,625
Impairment to NCI (10,000 x 15%) (1,500)
 NCINIS 10,125

Problem 18

Reported Cost of Sales 6,000,000

Intercompany sales - 2022 (2,750,000)
Realized profit on beg inventory - downstream (842,400) (3.9M x 60% x 36%)
Unrealized profit on ending inventory - downstream 550,000 (2.75M x 50% x 40%)
Consolidated cost of sales 2,957,600

Philippians Seth
Reported net income 1,800,000 1,000,000
Dividend income -490,000
Realized profit on beg inventory - downstream 842,400
Unrealized profit on ending inventory - downstream -550,000

Adjusted net income 1,602,400 1,000,000

Share of parent 700,000 -700,000
Impairment Loss 0 0
Consolidated net income 2,302,400 300,000

Net income attributable to parent 2,302,400

Net income attributable to NCI 300,000
Consolidated net income 2,602,400

Chapter 4
Multiple Choice - Theory
1 B 11 A
2 A 12 A
3 E 13 D
4 A 14 B
5 C 15 B
6 A 16 B
7 D 17 B
8 B 18 B
9 B 19 D
10 B 20 B
%) x 25% x 20%
21 C
22 C
23 B
24 C
25 D
26 B
27 C
28 D
29 A
30 C