Puma Company Owns 80% of the Common Stock of Smarte

question 38

Essay

Puma Company owns 80% of the common stock of Smarte Company.Puma sells merchandise to Smarte at 20% above cost.During 2014 and 2015, intercompany sales amounted to $1,080,000 and $1,200,000 respectively.At the end of 2014, Smarte had one-fifth of the goods purchased that year from Puma in its ending inventory.Smarte's 2015 ending inventory contained one-fourth of that year's purchases from Puma.There were no intercompany sales prior to 2014.
Puma reported net income from its own operations of $720,000 in 2014 and $760,000 in 2015.Smarte reported net income of $400,000 in 2014 and $460,000 in 2015.Neither company declared dividends in either year.
Required:
A.Prepare in general journal form all entries necessary on the consolidated statements workpapers to eliminate the effects of the intercompany sales for both 2014 and 2015.
B.Calculate controlling interest in consolidated net income for 2015.

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Definitions:

Dividend Yield

A ratio demonstrating how much a company disburses in dividends annually in comparison to its stock price.

Total Asset Turnover

A financial ratio that measures the efficiency of a company in using its assets to generate sales revenue, calculated by dividing sales by total assets.

Inventory Turnover

A financial ratio indicating the number of times a company's inventory is sold and replaced over a period.

Debt Ratio

A financial ratio that measures the extent of a company’s or individual's leverage, calculated by dividing total liabilities by total assets.