Intercompany Sale

of Inventories
PROBLEMS 16-16 to 16-24
• Pepsi Corporation purchased 70 percent of Sarsi Company’s voting stock
on May 18, 2013, at underlying book value. The companies reported the
following data with respect to intercompany sales in 2016 and 2017:

Year Purchased by Purchase Sold to Sale Price Unsold at Year sold to

Price end of year outsiders
2016 Sarsi P120,000 Pepsi P180,000 P45,000 2017

2017 Sarsi 90,000 Pepsi 135,000 30,000 2018

2017 Pepsi 140,000 Sarsi 280,000 110,000 2018

Pepsi reported operating income (excluding dividend income) of P160,000 and

P220,000 in 2016 and 2017, respectively. Sarsi reported CI of P90,000 and
P85,000 in 2016 and 2017, respectively.
• 16-16 What is the amount of Consolidated CI attributable to parent for 2016?

a. 212,500 b. 235,000 c. 190,000 d. 210,500

Pepsi CI from own operation 160,000

Sarsi CI 90,000
Unrealized profit in EI (45,000 x 60/180) (15,000) 75,000
Consolidated CI 235,000
Attributable to NCI (75,000 x 30%) (22,500)
Attributable to Parent-2016 212,500
• 16-17 What is the amount of inventory balance to be reported in the consolidated
statement of financial position at December 31, 2017?

a. 75,000 b. 70,000 c. 95,000 d. 75,000

Inventory-Pepsi P 30,000
Less: unrealized profit in books of Sarsi:
(135,000 – 90,000) x (30,000/135,000) (10,000) 20,000

Inventory-Sarsi P110,000
Less: unrealized profit in books of Pepsi:
(280,000 – 140,000) x (110,000/280,000) (55,000) 55,000
Consolidated inventory 12/31/17 75,000
• 16-18 What is the amount of consolidated cost of goods sold for 2017?

a. 185,000 b. 180,000 c. 190,000 d. 180,500

Cost of goods sold on sale of inventory on hand-1/1/16:

[45,000 x (120,000/180,000)] 30,000
Cost of goods sold on purchases from Sarsi- 2016
[(135,000 – 30,000) x (90,000/135,000)] 70,000
Cost of goods sold on purchases from Pepsi- 2016
[(280,000 – 110,000) x (140,000/280,000)] 85,000
Consolidated cost of goods sold-2017 185,000
• 16-19 What is the amount of consolidated CI for 2017?

a. 228,000 b. 255,000 c. 212,000 d. 232,000

Pepsi CI 220,000
Sarsi CI 85,000
Realized profit in beginning inventory - 2015 15,000
Unrealized profit in ending inventory- Sarsi (10,000)
Unrealized profit in ending inventory- Pepsi (55,000)
Consolidated CI – 2017 255,000
• On December 31, 2016, P company purchased 70% of the outstanding
shares of S Company for P245,000. On the date, S company had P100,000
of capital stock and P250,000 of retained earnings.
• For 2017, P company had CI of P200,000 from its own operations and paid
dividends of P100,000. For 2017, S company reported CI of P30,000 and
paid dividends of P20,000. All assets and liabilities of S company have
book values approximately equal to their book values.
• The beginning inventory of P company includes P6,000 of merchandise
purchased from S company on December 31, 2016 at 150% of cost. The
ending inventory of P company includes P9,000 of merchandise purchased
from S company at the same mark-up. P company uses FIFO inventory
costing.
• 16-20 What is the amount of consolidated CI attributable to parent for the year 2017?

a. 229,000 b. 220,300 c. 250,000 d. 230,000

CI from own operations – P Company P200,000

S Co. adjusted CI:
CI – S P30,000
Unrealized profit in ending inventory –
Upstream (P9,000 x 50/150) (3,000)
Realized profit in beginning inventory-
Upstream (P6,000 x 50/150) 2,000 29,000

Consolidated CI 229,000

Attributable to NCI (P29,000 x 30%) 8,700

Attributable to parent P220,300
• 16-21 Using the date 16-20, What is the NCI in S company for the year 2017?

a. 105,000 b. 107,700 c. 110,700 d. 117,000

NCI, December 31, 2016[(P245,000/70%) x 30%] P105,000

NCI in subsidiary dividends (P20,000 x 30%) -2017 ( 6,000)
NCI in CI of subsidiary 8,700
NCI in S Company, December 31, 2017 P107,700
• S company is a wholly owned subsidiary of P company. During 2017, S
company sold all of its production to P company for P400,000, a price that
includes a 20% gross profit. By year-end, P company sold 80% of the goods
it had purchased for P416,000. The balance of the intercompany goods,
remained in the ending inventory and was adjusted to a lower value of
P70,000. The adjustment was a charge to the cost of goods sold.

• 16-22 What is the gross profit on sales recorded by both companies?

P Company (P400,000 x 20%) P 80,000
P Company S Company

a. 50,000 76,000 S Company:

Sales P416,000
b. 80,000 96,000 Cost of goods sold (P400,000 x 80%) P320,000
c. 80,000 86,000 Add write down of ending inventory 10,000 330,000
Gross profit P 86,000
d. 90,000 80,000
• 16-23 Using the date 16-22, What is the gross profit to be shown on the
consolidated statement of CI?

a. 160,000 b. 150,000 c. 170,000 d. 180,000

Sales P416,000
Consolidated cost of goods sold 256,000*
Gross profit P160,000

* Purchases at cost (P400,000 x 80%) P320,000

Less ending inventory at cost (P80,000 x 80%) 64,000
Consolidated cost of goods sold P256,000

***Note that cost is lower than market

 Pablo Co. Sally Co.
• Sally company is an 80% SALES P 220,000 P 120,000
owned subsidiary of Pablo
company. The separate CGS (150,000) (90,000)
statements of GP 70,000 30,000
comprehensive income of
the two companies for 2017 OPEX (40,000) (12,000)
are as follows: Other income 5,000 -

Operating Income 35,000 18,000

Dividend income 14,400 -

CI P49,400 P 18,000

The ff. data apply in 2017:

a. Sally Company sold 70,000 of goods to Pablo Company. The gross profits on sales to
Pablo and to unrelated companies are equal and have not changed from the previous
years.
b. Pablo company held P15,000 of the goods purchased from sally in its beginning
inventory and P20,000 of such goods in ending inventory.
c. Pablo billed Sally P5,000 for computer services. The charge was expensed by Sally and
treated as other income by Pablo.
• 16-23 What is the consolidated CI
• attributable to parent for 2017?
(3) Other income:
Pablo Company P 5,000
a. 48,400 c. 48,500 Computer services (5,000)
----
(4) Other expenses:
b. 51,750 d. 48,500 Pablo Company P 40,000
Sally Company 12,000
Sales P270,000 (1) Computer services (5,000)
Consolidated other expenses P 47,000
Cost of goods sold 171,250 (2)
Gross profit 98,750 (5) NCI in CI of Sally
Other income - (3) CI P 35,000
Realized profit in beginning inventory (upstream) 3,750
Other expenses 47,000 (4) Unrealized profit in ending inventory (upstream) (5,000)
Consolidated CI 51,750 Adjusted CI P 16,750
Attributable to NCI 3,350 (5) NCI proportionate share 20%
NCI P 3,350
Attributable to controlling interest P 48,400

(1) Sales:
Pablo Company P220,000
Sally Company 120,000
Intercompany sales (70,000)
Consolidated sales P270,000

(2) Consolidated cost of goods sold:

Pablo Company P150,000
Sally Company 90,000
Intercompany sales ( 70,000)
Realized profit in beginning inventory (P15,000 x 25%) ( 3,750)
Unrealized profit in ending inventory (P20,000 x 25%) 5.000
Consolidated costs of goods sold P171,250