Advanced Accounting
12th Edition
ISBN: 9781305084858
Author: Paul M. Fischer, William J. Tayler, Rita H. Cheng
Publisher: Cengage Learning
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Question
Chapter 4, Problem 1UTI
To determine
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.
Expert Solution & Answer
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.
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The following information is available for Splish Brothers Inc. for the year ended December 31, 2017:
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$74,000
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$1,380,000
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89,000
Selling expenses
870,000
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Income tax applicable to continuing
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295,000
27,000
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219,000
Unrealized gain on available-for-sale
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securities
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An entity reported the following information for the year ended December 31, 2020:
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Administrative expenses
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Freight out
150,000
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Doubtful accounts expense
150,000
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The following is information for Novak Corp. for the year ended December 31, 2020:
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Loss on disposal of equipment
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Interest income
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Depreciation expense related to buildings omitted by mistake in 2019
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Administrative expenses
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Dividend revenue
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a)Prepare the retained earnings section of the statement of changes in equity for 2020. (List…
Chapter 4 Solutions
Advanced Accounting
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