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Intercompany Profit Consolidation Example

The document discusses an example of consolidating intercompany profits between Sit Corporation and its 80% parent company Poh Corporation. It provides details of Sit selling inventory items to Poh in 2012, including the amounts. It also discusses how Poh accounts for its investment in Sit under the equity method, including the balances and entries made in 2011 and 2012.

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51 views1 page

Intercompany Profit Consolidation Example

The document discusses an example of consolidating intercompany profits between Sit Corporation and its 80% parent company Poh Corporation. It provides details of Sit selling inventory items to Poh in 2012, including the amounts. It also discusses how Poh accounts for its investment in Sit under the equity method, including the balances and entries made in 2011 and 2012.

Uploaded by

Erii
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd

CONSOLIDATION EXAMPLE—INTERCOMPANY PROFITS

FROM UPSTREAM SALES

Sit Corporation is an 80 percent-owned subsidiary of Poh Corporation, acquired for


$480,000 on
January 2, 2011, when Sit’s stockholders’ equity consisted of $500,000 capital stock and
$100,000
retained earnings. The investment cost was equal to the book value and fair value of Sit’s
net assets
acquired, so no fair value/book value differential resulted from the acquisition.
Sit Corporation sells inventory items to Poh Corporation on a regular basis. The
intercompany
transaction data for 2012 are as follows:

Equity Method
At December 31, 2011, Poh’s Investment in Sit account had a balance of $568,000, consist-
ing of $600,000 underlying equity in Sit’s net assets ($750,000 × 80%) less 80 percent of
the $40,000 unrealized profit in Poh’s December 31, 2011, inventory from upstream sales.
During 2012, Poh made the following entries to account for its investment in Sit under the
equity method:

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