The Trial Balances of Ash Inc Other Information:
Ash Acquired Cinder in Three Stages

question 45

Essay

The trial balances of Ash Inc. and its subsidiary Cinder Corp. on December 31, 2018 are shown below: $\begin{array}{|l|l|l|} \hline& \text { Ash } & \text { Cinder } \\\hline \text { Imventory } & \$ 160,000 & \$ 100,000 \\\hline \text { Plant and Equipment (net) } & \$ 2,700,000 & \$ 700,000 \\\hline \text { Dividends Declared } & \$ 200,000 & \$ 100,000 \\\hline \text { Investment in Cinder } & \$ 700,000 &- \\\hline \text { Cost of Goods Sold } & \$ 650,000 & \$ 90,000 \\\hline \text { Other Expenses } & \$ 50,000 & \$ 10,000 \\\hline \text { Total Assets } & \$ 4,460,000 & \$ 1,000,000 \\\hline\\\hline \text { Liabilities } & \$ 1,000,000 & \$ 150,000 \\\hline \text { Common Shares } & \$ 1,660,000 & \$ 600,000 \\\hline \text { Retained Earnings } & \$ 600,000 & \$ 100,000 \\\hline \text { Sales and Other Revenue } & \$ 1,200,000 & \$ 150,000 \\\hline \text { Total Labilities and Equity } & \$ 4,460,000 & \$ 1,000,000 \\\hline\end{array}$ Other Information:
Ash acquired Cinder in three stages:
$\begin{array}{|l|l|}\hline \text { January 1, 2015: } & \begin{array}{l}\text { Ash purchased } 10,000 \text { shares for } \$ 100,000 . \text { Cinder's Retained Earnings were } \$ 40,000 \text { on that } \\\text { date. }\end{array} \\\hline \text { January 1, 2017: } & \begin{array}{l}\text { Ash purchased } 30,000 \text { shares for } \$ 450,000 . \text { Cinder's Retained Earnings were } \$ 80,000 \text { on that } \\\text { date. }\end{array} \\\hline \begin{array}{l}\text { December 31, } \\2018:\end{array} & \begin{array}{l}\text { Ash purchased } 20,000 \text { shares for } \$ 150,000 . \text { Cinder's Retained Earnings were } \$ 100,000 \text { on that } \\\text { date. }\end{array} \\\hline\end{array}$ Cinder was incorporated on January 1, 2013. On that date, Cinder issued 100,000 voting shares. Any difference between the cost and book value is attributable entirely to trademarks, which are to be amortized over 5 years. The company has neither issued nor retired shares since the date of its incorporation.
Ash sold depreciable assets to Cinder at a loss of $20,000 on January 1, 2017. These assets had a 10 year remaining life.
Intercompany sales of inventory during 2018 amounted to $250,000. Unrealized inventory profits for each company are shown below for 2018. The amounts indicate the amount of profit in each company's inventory. $$\begin{array} { | l | l | } \hline \text { Ash } & \\\hline \text { January 1, 2018: } & \$ 10,000 \\\hline \text { December 31, 2018 } & \$ 20,000 \\\hline & \\\hline \text { Cinder } & \\\hline \text { January 1, 2018: } & \$ 20,000 \\\hline \text { December 31, 2018 } & \$ 40,000 \\\hline\end{array}$$
All inventories on hand at the start of 2018 were sold to outsiders during the year. The net Incomes of both companies are evenly earned throughout the year. Both companies are subject to an effective corporate tax rate of 20%.
-Compute the Consolidated Cost of Goods Sold for 2018.

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Definitions:

Useful Life

The estimated duration of time over which an asset is expected to be functional and contribute to a company's operations.

Revenue Expenditures

Short-term expenses incurred during normal business operations that are charged against revenue in the period they are incurred.

Capital Expenditures

Funds used by a company to acquire, upgrade, and maintain physical assets such as property, plants, buildings, technology, or equipment.

Major Overhaul

A significant restoration or repair of equipment, aimed at extending its useful life.