On January 1, 2008, Perry Company Purchased a 90% Interest

question 18

Essay

On January 1, 2008, Perry Company purchased a 90% interest in Sludge Company for $800,000, the same as the book value on that date. On January 1, 2017, Sludge sold new equipment to Perry for $16,000. The equipment cost $11,000 and had a five year estimated life as of January 1, 2017.
During 2018, Perry sold merchandise to Sludge at 20% above cost in the amount (selling price) of $126,000. At the end of the year, Sludge had $42,000 of this merchandise in its ending inventory. At the beginning of 2018, Sludge had $48,000 of inventory purchased in 2017 from Perry.
Required:
A. Prepare all workpaper entries necessary to eliminate the effects of the intercompany sales on the consolidated financial statements for 2018.
B. Calculate the amount of noncontrolling interest to be deducted from consolidated net income in the consolidated income statement for 2018. Sludge Company reported $40,000 of net income in 2018.

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Definitions:

F.O.B. Contracts

F.O.B. (Free on Board) Contracts are commercial agreements where the seller is obligated to deliver goods on board a vessel chosen by the buyer at a specified location, with the buyer taking responsibility for the goods once they're onboard.

Title

A formal right of ownership of property, indicating the holder has legal control and rights regarding its use or transfer.

Risk

Potential loss from destruction or damage to goods, injury, or other eventuality.

Seller's Place

The physical or juridical location where the seller operates, often relevant in legal and commercial transactions.