Pinta Company Owns 90% of the Common Stock of Simplex

question 19

Essay

Pinta Company owns 90% of the common stock of Simplex Company. Simplex Company sells merchandise to Pinta Company at 25% above cost. During 2016 and 2017 such sales amounted to $800,000 and $1,020,000, respectively. At the end of each year, Pinta Company had in its inventory one-fourth of the amount of goods purchased from Simplex Company during that year. Pinta Company reported income of $1,500,000 from its independent operations in 2016 and $1,720,000 in 2017. Simplex Company reported net income of $600,000 in each year and did not declare any dividends in either year. There were no intercompany sales prior to 2016.
Required:
A. Prepare, in general journal form, all entries necessary on the 2017 consolidated statements workpaper to eliminate the effects of intercompany sales.
B. Calculate the amount of noncontrolling interest to be deducted from consolidated income in the consolidated income statement in 2017.
C. Calculate controlling interest in consolidated net income for 2017.

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Definitions:

Utility Function

A mathematical representation of how different bundles of goods or services affect an individual's level of satisfaction or happiness.

Reservation Price

The maximum price a consumer is willing to pay for a good or service, beyond which they will not make a purchase.

Utility Function

A model that assigns numerical values to different bundles of goods, reflecting the satisfaction or utility these bundles provide to a consumer.

Gasoline Demanded

The total amount of gasoline consumers are willing and able to purchase at a given price within a specified period.