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The consolidated income statement for POP Industries and its 75% Subsidiary, SAS at the end of 2019 was as follows: Consolidated sales $900,000 , Consolidated cost of Sales $500,000 Operating expenses $200,000, Noncontrolling interest share $25,000 ,and Controlling interest share $175,000
The consolidated income statement for POP Industries and its 75% Subsidiary, SAS at the end of 2019 was as follows: Consolidated sales $900,000 , Consolidated cost of Sales $500,000 Operating expenses $200,000, Noncontrolling interest share $25,000 ,and Controlling interest share $175,000.
After preparing the consolidated income statement, the accountants discovered that POP had sold inventory that cost $75,000 to SAS for $95,000, and SAS had sold inventory that cost $40,000 to POP for $58,000. Half of the products from both transactions still remained in inventory at December 31, 2019. These intercompany sales transactions had not been properly eliminated in consolidation.
Required: Prepare the consolidated income statement for POP and Subsidiary for 2019 after correcting these errors. (Support your answer with detailed Formulas, calculations and explanation)
Expert Solution
Step 1 :- The consolidated income statement :-
| Consolidated sales | $900,000 |
| LESS : Cost of sales | $500,000 |
| Gross profit | $400,000 |
| LESS; Operatong expenses | $200,000 |
| Operating profit | $200,000 |
| LESS : Controlling interest share | $175,000 |
| Net income to controlling interest | 25,000 |
Step 2 :- The, Half of the inventory $58,000/2 = 29,000 is remained in stock.
So, the eliminated from inventory is 29,000* 58,000 - 40,000 / 58,000
= 29,000*1800 /58000
= $9,000
After errors, the corrected sales = $900,000 - $9,000
= $842,000
Step 3 :- The corrected consolidated income statement :-
| Consolidated sales | $842,000 |
| LESS : Cost of sales | $451,000 |
| Gross profit | $391,000 |
| LESS; Operatong expenses | $200,000 |
| Operating profit | $191,000 |
| LESS : Controlling interest share | $166,000 |
| Net income to controlling interest | 25,000 |
Working note :- Cost of sales = $500,000 - $9,000 = $451,000
Controlling interest share = $175,000 - $9,000 = $166,00
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