Advanced Accounting
Advanced Accounting
14th Edition
ISBN: 9781260247824
Author: Joe Ben Hoyle, Thomas F. Schaefer, Timothy S. Doupnik
Publisher: RENT MCG
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Chapter 1, Problem 29P
To determine

Introduction: When related companies trade with each other, sales between them require special accounting treatment, because a business cannot recognize profit through business activities with itself. When an investor company sells inventory to its investee company, the investment company can defer profit on such inventory until it is sold to an unrelated party.

The income effect reported from ownership in S, for the year ended December 31, 2021.

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On January 1, 2021, Pine Company owns 40 percent (140,000 shares) of Seacrest, Inc., which it purchased several years ago for $644,000. Since the date of acquisition, the equity method has been properly applied, and the carrying amount of the investment account as of January 1, 2021, is $875,000. Excess patent cost amortization of $42,000 is still being recognized each year. During 2021, Seacrest reports net income of $942,000 and a $420,000 other comprehensive loss, both incurred uniformly throughout the year. No dividends were declared during the year. Pine sold 28,000 shares of Seacrest on August 1, 2021, for $223,454 in cash. However, Pine retains the ability to significantly influence the investee. During the last quarter of 2020, Pine sold $75,000 in inventory (which it had originally purchased for only $45,000) to Seacrest. At the end of that fiscal year, Seacrest's inventory retained $12,300 (at sales price) of this merchandise, which was subsequently sold in the first quarter…
On January 1, 2021, Pine Company owns 40 percent (84,000 shares) of Seacrest, Ic., which it purchased several years ago for $449,400. Since the date of acquisition, the equity method has been properly applied, and the carrying amount of the investment account as of January 1, 2021, is $588,000. Excess patent cost amortization of $25,200 is still being recognized each year. During 2021, Seacrest reports net income of $606,000 and a $252,000 other comprehensive loss, both incurred uniformly throughout the year. No dividends were declared during the year. Pine sold 16,800 shares of Seacrest on August 1, 2021, for $170,401 in cash. However, Pine retains the ability to significantly influence the investee. During the last quarter of 2020, Pine sold $61,000 in inventory (which it had originally purchased for only $36,600) to Seacrest. At the end of that fiscal year, Seacrest's inventory retained $13,300 (at sales price) of this merchandise, which was subsequently sold in the first quarter of…
On January 1, 2018, Pine Company owns 40 percent (40,000 shares) of Seacrest, Inc., which it purchased several years ago for $182,000. Since the date of acquisition, the equity method has been properly applied, and the carrying amount of the investment account as of January 1, 2018, is $293,600. Excess patent cost amortization of $12,000 is still being recognized each year. During 2018, Seacrest reports net income of $342,000 and a $120,000 other comprehensive loss, both incurred uniformly throughout the year. No dividends were declared during the year. Pine sold 8,000 shares of Seacrest on August 1, 2018, for $93,000 in cash. However, Pine retains the ability to significantly influence the investee.During the last quarter of 2017, Pine sold $50,000 in inventory (which it had originally purchased for only $30,000) to Seacrest. At the end of that fiscal year, Seacrest’s inventory retained $10,000 (at sales price) of this merchandise, which was subsequently sold in the first quarter of…
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