Asked by Julia Herbst on Jun 11, 2024
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The trial balances of Ash Inc. and its subsidiary Cinder Corp. on December 31, 2020 are shown below:
Ash Cinder Inventory $160,000$100,000 Plant and Equipment (net) $2,700,000$700,000 Dividends Declared $200,000$100,000 Investment in Cinder $700,000 Cost of Goods Sold $650,000$90,000 Other Expenses $50,000$10,000 Total Assets $4,460,000$1,000,000 Liabilities $1,000,000$150,000 Common Shares $1,660,000$600,000 Retained Earnings $600,000$100,000 Sales and Other Revenue $1,200,000$150,000 Total Liabilities and Equity $4,460,000$1,000,000\begin{array}{|l|r|r|}\hline & \text { Ash } & \text { Cinder } \\\hline \text { Inventory } & \$ 160,000 & \$ 100,000 \\\hline \text { Plant and Equipment (net) } & \$ 2,700,000 & \$ 700,000 \\\hline \text { Dividends Declared } & \$ 200,000 & \$ 100,000 \\\hline \text { Investment in Cinder } & \$ 700,000 & \\\hline \text { Cost of Goods Sold } & \$ 650,000 & \$ 90,000 \\\hline \text { Other Expenses } & \$ 50,000 & \$ 10,000 \\\hline \text { Total Assets } & \$ 4,460,000 & \$ 1,000,000 \\\hline \text { Liabilities } & \$ 1,000,000 & \$ 150,000 \\\hline \text { Common Shares } & \$ 1,660,000 & \$ 600,000 \\\hline \text { Retained Earnings } & \$ 600,000 & \$ 100,000 \\\hline \text { Sales and Other Revenue } & \$ 1,200,000 & \$ 150,000 \\\hline \text { Total Liabilities and Equity } & \$ 4,460,000 & \$ 1,000,000\\\hline\end{array} Inventory Plant and Equipment (net) Dividends Declared Investment in Cinder Cost of Goods Sold Other Expenses Total Assets Liabilities Common Shares Retained Earnings Sales and Other Revenue Total Liabilities and Equity Ash $160,000$2,700,000$200,000$700,000$650,000$50,000$4,460,000$1,000,000$1,660,000$600,000$1,200,000$4,460,000 Cinder $100,000$700,000$100,000$90,000$10,000$1,000,000$150,000$600,000$100,000$150,000$1,000,000 Other Information:
Ash acquired Cinder in three stages:
january 1, 2017: Ash purchased 10,000 shares for $100,000. Cinder’s Retained Earnings were $40,000 on that date. The investment is classified as fair value through profit or loss (FVTPL). january 1, 2019: Ash purchased 30,000 shares for $450,000. Cinder’s Retained Earnings were $80,000 on that date. Ash has obtained significant influence in the key decisions for Cinder. December 31,2020: Ash purchased 20,000 shares for $150,000. Cinder’s Retained Earnings were $100,000 on that date. Ash now owns 60% and has control over Cinder.\begin{array} { |l|l| }\hline \text { january 1, 2017:}& \begin{array} { l } \text { Ash purchased 10,000 shares for \( \$ 100,000 \). Cinder's } \\ \text { Retained Earnings were \( \$ 40,000 \) on that date. The } \\ \text {investment is classified as fair value through profit or loss } \\ \text {(FVTPL). } \\\end{array}\\\hline \text {january 1, 2019: } &\begin{array} { l } \text { Ash purchased 30,000 shares for \( \$ 450,000 \). Cinder's } \\ \text {Retained Earnings were \( \$ 80,000 \) on that date. Ash } \\ \text {has obtained significant influence in the key decisions for } \\ \text {Cinder. } \\\end{array}\\\hline \text {December 31,2020: } &\begin{array} { l } \text {Ash purchased 20,000 shares for \( \$ 150,000 \). Cinder's } \\ \text { Retained Earnings were \( \$ 100,000 \) on that date. Ash } \\ \text { now owns \( 60 \% \) and has control over Cinder.} \\\end{array}\\\hline \end{array} january 1, 2017:january 1, 2019: December 31,2020: Ash purchased 10,000 shares for $100,000. Cinder’s Retained Earnings were $40,000 on that date. The investment is classified as fair value through profit or loss (FVTPL). Ash purchased 30,000 shares for $450,000. Cinder’s Retained Earnings were $80,000 on that date. Ash has obtained significant influence in the key decisions for Cinder. Ash purchased 20,000 shares for $150,000. Cinder’s Retained Earnings were $100,000 on that date. Ash now owns 60% and has control over Cinder.
Cinder was incorporated on January 1, 2015. On that date, Cinder issued 100,000 voting shares.
Any difference between the cost and book value is attributable entirely to trademarks, which are to be amortized over 5 years. The company has neither issued nor retired shares since the date of its incorporation.
Ash sold depreciable assets to Cinder at a loss of $20,000 on January 1, 2019. These assets had a 10 year remaining life.
Intercompany sales of inventory during 2020 amounted to $250,000. Unrealized inventory profits for each company are shown below for 2020. The amounts indicate the amount of profit in each company's inventory.
Ash January 1,2020:$10,000 December 31,2020:$20,000 Cinder January 1,2020:$20,000 December 31,2020:$40,000\begin{array}{|c|c|}\hline \text { Ash } & \\\hline \text { January } 1,2020: & \$ 10,000 \\\hline \text { December } 31,2020: & \$ 20,000 \\\hline \text { Cinder } & \\\hline \text { January } 1,2020: & \$ 20,000 \\\hline \text { December } 31,2020: & \$ 40,000 \\\hline\end{array} Ash January 1,2020: December 31,2020: Cinder January 1,2020: December 31,2020:$10,000$20,000$20,000$40,000 All inventories on hand at the start of 2020 were sold to outsiders during the year. The net incomes of both companies are evenly earned throughout the year. Both companies are subject to an effective corporate tax rate of 20%.
Compute consolidated inventory for Ash as at December 31, 2020.
Consolidated Inventory
The total value of all inventories held by a parent company and its subsidiaries, accounted for in a consolidated financial statement.
Unrealized Inventory Profits
Profits that are reported on paper through an increase in inventory value but have not yet been realized through sales.
Significant Influence
Significant Influence is the ability of an investor to affect the financial or operating policy decisions of the investee through ownership, contracts, or other means, short of full control or joint control.
- Manage transactions between affiliated companies and adjust for profits not yet realized in the process of financial consolidation.
Verified Answer
SW
shantay whiteJun 16, 2024
Final Answer :
Book value of inventory $260,000 less: Unrealized Profits ($20,000+$40,000)($60,000)$200,000\begin{array} { | l | c | } \hline \text { Book value of inventory } & \$ 260,000 \\\hline \text { less: } & \\\hline \text { Unrealized Profits } ( \$ 20,000 + \$ 40,000 ) & (\$ 60,000 ) \\\hline & \$ 200,000 \\\hline\end{array} Book value of inventory less: Unrealized Profits ($20,000+$40,000)$260,000($60,000)$200,000
Learning Objectives
- Manage transactions between affiliated companies and adjust for profits not yet realized in the process of financial consolidation.