To determinbe:.The type of errors that would be there on the consolidated income statement and
Introduction: Consolidation is a process in which financial statements of subsidiary is merged with financial statements of the parent. In this process, effect of intercompany transactions are eliminated.
Explanation of Solution
Errors that would be there in the consolidated income statement and balance sheet in the absence of consolidation adjustments are listed as follows:
Unsold stock in the balance sheet would incude a profit of $3,000
- Sales figures and cost of goods sold figure of the consolidated income statement would show inflated values. Sales figures would include sales made to subsidiary, as well as sales made to an outside party. Similarly, COGS would include cost to parent as well cost to subsidiary. This would result in decrease of gross profit percentage.
Therefore sales made by seller to buyer should be eliminated, COGS of the buyer should be eliminated, profit component of COGS remaining unsold is eliminated and profit included in the unsold inventory should be eliminated.
Want to see more full solutions like this?
Chapter 4 Solutions
Advanced Accounting
- The following information is available for Splish Brothers Inc. for the year ended December 31, 2017: Loss on discontinued operations $74,000 Retained earnings January 1, 2017 $1,380,000 Rent revenue 89,000 Selling expenses 870,000 Income tax applicable to loss on discontinued Income tax applicable to continuing operations 295,000 27,000 operations Administrative expenses 524,000 Cost of goods sold 1,628,000 Loss on write-down of inventory 42,000 Sales revenue 3,750,000 Gain on sale of equipment 39,000 Cash dividends declared 219,000 Unrealized gain on available-for-sale 33,000 Interest expense 60,000 securities 200,000 shares were outstanding during all of 2017. Prepare a multiple-step income statement. (Round earnings per share to 2 decimal places, e.g. 1.45.) Splish Brothers Inc. Income Statement For the Year Ended December 31, 2017 Sales Revenue 2$ Cost of Goods Sold Gross Profit Operating Expenses Selling Expenses Administrative Expenses %24arrow_forwardBALANAR CORP. reports on a calendar-year basis. The financial statements contained the following errors: 2013 2014 Over (under) statement of ending inventory (100,000) 40,000 Depreciation understatement 40,000 60,000 Failure to accrue salaries at year-end 80,000 120,000 As a result of the errors, what was the effect on net income for 2014? А. 240,000 overstated C. 320,000 overstated В. 240,000 understated D. 320,000 understatedarrow_forwardBridgeport Co. reported before-tax income of $427,000 in 2017 and $323,000 for 2018. However, the company’s new controller found that the following errors had been made: 1. Sales for 2018 included $21,800 which had been received in cash during 2018, but for which the related products were delivered and title passed to the purchaser in 2017. 2. Inventory on December 31, 2017, was overstated by $6,600. 3. Ordinary repairs to equipment in the amount of $19,500 were erroneously charged to the Equipment account during 2017. The company recorded a full year of depreciation on this amount in 2017 and 2018 on a straight-line basis assuming a 10-year life. 4. The bookkeeper in recording interest expense for both 2017 and 2018 on bonds payable made the following entry on an annual basis. Interest Expense 25,300 Cash 25,300 The bonds have a face value of $253,000 and pay a stated interest rate of 10%. They were issued at a premium of $9,840 on…arrow_forward
- The following is information for Novak Corp. for the year ended December 31, 2020: Sales revenue $1,420,000 Loss on inventory due to decline in net realizable value $70,000 Unrealized gain on FV-OCI equity investments 46,000 Loss on disposal of equipment 45,000 Interest income 9,000 Depreciation expense related to buildings omitted by mistake in 2019 56,000 Cost of goods sold 852,000 Retained earnings at December 31, 2019 950,000 Selling expenses 71,000 Loss from expropriation of land 57,000 Administrative expenses 52,000 Dividends declared 46,000 Dividend revenue 15,000 The effective tax rate is 25% on all items. Novak prepares financial statements in accordance with IFRS. The FV-OCI equity investments trade on the stock exchange. Gains/losses on FV-OCI investments are not recycled through net income. a)Prepare the retained earnings section of the statement of changes in equity for 2020. (List…arrow_forward(Error Analysis) The before-tax income for Lonnie Holdiman Co. for 2017 was $101,000 and $77,400 for 2018. However, the accountant noted that the following errors had been made:1. Sales for 2017 included amounts of $38,200 which had been received in cash during 2017, but for which the related products were delivered in 2018. Title did not pass to the purchaser until 2018.2. The inventory on December 31, 2017, was understated by $8,640.3. The bookkeeper in recording interest expense for both 2017 and 2018 on bonds payable made the following entry on an annual basis.Interest Expense 15,000Cash 15,000The bonds have a face value of $250,000 and pay a stated interest rate of 6%. They were issued at a discount of $15,000 on January 1, 2017, to yield an effective-interest rate of 7%. (Assume that the effective-yield method should be used.)4. Ordinary repairs to equipment had been erroneously charged to the Equipment account during 2017 and 2018. Repairs in the amount of $8,500 in 2017 and…arrow_forwardAccounting The following information is available for Sage Hill Inc. for the year ended December 31, 2017: Loss on discontinued operations Rent revenue Income tax applicable to continuing operations Administrative expenses Loss on write-down of inventory Gain on sale of equipment Unrealized gain on available-for-sale securities $68,000 95,000 314,000 509,000 38,000 39,000 33,000 Retained earnings January 1, 2017 Selling expenses Income tax applicable to loss on discontinued operations Cost of goods sold Sales revenue Cash dividends declared Interest expense 200,000 shares were outstanding during all of 2017. $1,420,000 867,000 24,000 1,672,000 3,760,000 211,000 57,000arrow_forward
- Use the following information for the next three (3) questions: Silhouette Corporation reported profit for the year 2014 and 2015 at P550,000 and P700,000, respectively. Your audit of the company’s account disclosed the need for adjustments as follows: 2014 2015 Overstatement of ending inventory due to error in pricing 29,000 33,000 Omission of depreciation on newly-acquired equipment 15,000 15,000 Understatement of commission receivable 22,000 18,000 A purchase of merchandise was not recorded until the following year, and also was not included in the ending inventory 60,000 33) The adjusted profit for 2015 was 34) What is the effect of the foregoing errors (overstatement) on total assets at December 31, 2015? 35) What is the effect on the foregoing errors on retained earnings at December 31, 2014?arrow_forwardAn inventory loss of P900,000 from decline in net realizable value occurred in April 2021. Chicken Wings Company recorded this loss in April 2021 after its March 31, 2021 quarterly report was issued. Of its loss, P200,000 was recovered by the end of the year. How should this loss and subsequent gain be reflected in the quarterly statements (1st, 2nd, 3rd and 4th, respectively) in profit(loss) of Jimin Company? a. P(225,000), P(225,000), P(225,000), P(225,000) b. P0, P(900,000), P0, P200,000 c. P0, P(300,000), P(300,000), P(300,000) d. P0, P(900,000), P0, P0arrow_forwardThe following information is related to Windsor Company for 2017. Retained earnings balance, January 1, 2017 $998,500 Sales Revenue 26,110,000 Cost of goods sold 16,240,000 Interest revenue 77,200 Selling and administrative expenses 4,748,000 Write-off of goodwill 837,500 Income taxes for 2017 1,254,000 Gain on the sale of investments 111,600 Loss due to flood damage 400,100 Loss on the disposition of the wholesale division (net of tax) 441,500 Loss on operations of the wholesale division (net of tax) 93,200 Dividends declared on common stock 251,800 Dividends declared on preferred stock 85,800 Windsor Company decided to discontinue its entire wholesale operations (considered a discontinued operation) and to retain its manufacturing operations. On September 15, Windsor sold the wholesale operations to Rogers Company. During 2017, there were 494,700 shares of common stock outstanding all year. (a1) Prepare a multiple-step…arrow_forward
- Presented below is information related to Sunland Company as of and for the year ended December 31, 2017. This was Sunland Company's first year of operations. (Ignore income tax effects.) Sales revenue $ 1,380,000 Cost of goods sold 700,000 Selling and administrative expenses 320,000 Loss on sale of plant assets 68,000 Unrealized gain on available-for-sale investments 17,000 Interest expense 5,800 Interest revenue 3,900 Loss on discontinued operations 2,600 Allocation to noncontrolling interest 8,700 Dividends declared and paid 27,200arrow_forwardPresented below is information related to Sunland Company as of and for the year ended December 31, 2017. This was Sunland Company's first year of operations. (Ignore income tax effects.) Sales revenue $ 1,380,000 Cost of goods sold 700,000 Selling and administrative expenses 320,000 Loss on sale of plant assets 68,000 Unrealized gain on available-for-sale investments 17,000 Interest expense 5,800 Interest revenue 3,900 Loss on discontinued operations 2,600 Allocation to noncontrolling interest 8,700 Div declared and paid 27,200arrow_forward19. Fuschia Company is a calendar year corporation. Its financial statements for the years 2018 and 2017 contained errors as follows: 2017 P400,000 understated 200,000 overstated 350,000 overstated 2018 Ending inventory Depreciation expense 500,000 understated Rent income Unearned rent income 350,000 understated P300,000 overstated Assume that no correcting entries were made at December 31, 2017. By how much will 2018 profit before income taxes be overstated because of the foregoing errors? A. P850,000 B. P800,000 C. P750,000 D. P250,000 20. Assume that no correcting entries were made in both 2017 and 2018. For how much was the retained earnings understated or overstated as of December 31, 2018? A. P600,000 overstated B. P800,000 overstated C. P1,050,000 overstated D. P200,000 understatedarrow_forward
- AccountingAccountingISBN:9781337272094Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.Publisher:Cengage Learning,Accounting Information SystemsAccountingISBN:9781337619202Author:Hall, James A.Publisher:Cengage Learning,
- Horngren's Cost Accounting: A Managerial Emphasis...AccountingISBN:9780134475585Author:Srikant M. Datar, Madhav V. RajanPublisher:PEARSONIntermediate AccountingAccountingISBN:9781259722660Author:J. David Spiceland, Mark W. Nelson, Wayne M ThomasPublisher:McGraw-Hill EducationFinancial and Managerial AccountingAccountingISBN:9781259726705Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting PrinciplesPublisher:McGraw-Hill Education