Inventory Profits

1
Inventory Profits

• Case III

2
S-Co's Equity At Date
Common Stock 10,000 Cost 60,000
Paid in Excess 15,000 Percentage 0.80
Retained Earnings 25,000
Net Book Value 50,000
3
  NBV Market Life
Other Assets 14,000 18,000 4

  Year 1 Year 2
Net Income of Sub 12,000 15,000
Dividends of Sub 5,000 8,000
4
Inter Company Inventory Transactions _at_ Interco
Price

Downstream Year 1 Year 2 Mark-up
Sales 45,000 60,000 0.3
Ending Inventory 10,000 15,000  
Upstream      
Sales 40,000 25,000 0.6
Ending Inventory 15,000 5,000  
5
Elimination Entry at Date
Common Stock 10,000
Paid in Excess 15,000
Retained Earnings 25,000
Other Assets 4,000
Goodwill 16,800
Investment 60,000
Minority Interest 10,800
6
Equity Method Year 1
Investment in S Co 9,600
Income from S Co 9,600

Cash 4,000
Investment in S So 4,000

Income from S Co 800
Investment in S So 800

Income from S Co 6,808
Investment in S So 6,808
7
Elimination Entries Year 1 - 1
Common Stock 10,000
Paid in Excess 15,000
Retained Earnings 25,000
Other Assets 4,000
Goodwill 16,800
Investment 60,000
Minority Interest 10,800
8
Elimination Entries Year 1 2 3
Income from S Co 1,992
Investment in S Co 2008
Dividends 4,000

M. I. in Income 1,075
Dividends 1,000
Minority Interest 75
9
Elimination Entries Year 1 4 5
Depreciation Expense 1,000
Other Assets 1,000

Inter-Co Sales 85,000
Inter-Co COGS 59,615
COGS 17,452
Inventory 7,933
10
Equity Method Year 2
Investment in S Co 12,000
Income from S Co 12,000

Cash 6,400
Investment in S So 6,400

Income from S Co 800
Investment in S So 800

Investment in S Co 1,846
Income from S So 1,846
11
Elimination Entries Year 2 - 1
Common Stock 10,000
Paid in Excess 15,000
Retained Earnings 32,000
Other Assets 3,000
Goodwill 16,800
Investment 57,992
Minority Interest 10,875
COGS 7,933
12
Elimination Entries Year 2 2 3
Income from S Co 13,046
Investment in S Co 6,646
Dividends 6,400

M. I. in Income 3,550
Dividends 1,600
Minority Interest 1,950
13
Elimination Entries Year 2 4 5
Depreciation Expense 1,000
Other Assets 1,000

Inter-Co Sales 85,000
Inter-Co COGS 61,779
COGS 17,885
Inventory 5,337