Pine Company, a Computer Manufacturer, Owns 90% of the Outstanding

question 39

Essay

Pine Company, a computer manufacturer, owns 90% of the outstanding stock of Slider Company.On January 1, 2014, Pine sold computers to Slider for $500,000.The computers, which are inventory to Pine, had a cost to Pine of $350,000.Slider Company estimated that the computers had a useful life of six years from the date of purchase.
Slider Company reported net income of $310,000, and Pine Company reported net income of $870,000 from its independent operations (including sales to affiliates) for the year ended December 31, 2014.
Required:
A.Prepare in general journal form the workpaper entries necessary because of the intercompany sales in the consolidated statements workpaper for both 2014 and 2015.
B.Calculate controlling interest in consolidated net income for 2014.

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Definitions:

Net Operating Income

The total profit of a business after all operating expenses are deducted, but before taxes and interest are considered.

Fixed Expenses

Costs that do not fluctuate with the level of production or sales, remaining constant even when business activity levels change.

Rural Sales Territory

A geographic area located in the countryside where a company's sales representatives focus their marketing and sales efforts.

Net Operating Income

The profit generated from a company's everyday business operations, excluding taxes and interest.