Pastern Industries Has an 80% Ownership Stake in Sascon Incorporated

question 43

Essay

Pastern Industries has an 80% ownership stake in Sascon Incorporated.At the time of purchase,the book value of Sascon's assets and liabilities were equal to the fair value.The cost of the 80% investment was equal to 80% of the book value of Sascon's net assets.At the end of 2014,they issued the following consolidated income statement:
Shortly after the statements were issued,Pastern discovered that the 2014 intercompany sales transactions had not been properly eliminated in consolidation.In fact,Pastern had sold inventory that cost $80,000 to Sascon for $90,000,and Sascon had sold inventory that cost $50,000 to Pastern for $65,000.Half of the products from both transactions still remained in inventory at December 31,2014.
Required: Prepare a corrected income statement for Pastern and Subsidiary for 2014.

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Definitions:

T Account

A graphical representation of a ledger account, used in accounting to depict debits and credits for a specific account.

Debit Side

refers to the left-hand side of a ledger account that records increases in assets, expenses, and decreases in liabilities and equity.

Credit Side

The right side of an account in double-entry bookkeeping, typically used to record increases in liabilities, revenue, or equity.

Basic Accounting Equation

The foundational accounting principle stating that Assets = Liabilities + Equity.