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Intercompany Transactions
Intercompany Transactions
Intercompany Transactions
Problem 1
Prima Company had 90% ownership interest acquired several years ago in Donna Company of which
800,000 was paid on Jan 1, 2012. The amortization of allocated excess (identifiable assets) arising from
the acquisition amounted to 2,000 per year. The inventories acquired from the affiliates are:
The net income from own operations and the dividends for 2014 using cost model method were as follows
Requirements:
Problem 2
On January 1, 2012, Pam Company purchased 80% of the outstanding shares of common stocks of Sam
Company by paying 340,000. The common stocks and retained earnings of Sam Company on this date
amounted to 150,000 and 210,000 respectively. Also on this date, the equipment with 10 year remaining
life is undervalued by 20,000.
On January 1, 2014, Sam Company had 150,000 of common stocks and 300,000 of Retained Earnings. Also
on the same date. Pam Company had 1,000,000 common Stocks and 700,000 of retained earnings.
During the year, Pam Company sold merchandise to Sam for 60,000 and in turn, purchased 40,000 from
Sub Company. Inter-company sales of merchandise were made at the following gross profit rate:
On December 31, 2014, 30% of all intercompany sales remain in the ending inventory of the purchasing
affiliate.
The beginning inventory of Pam includes 2,500 worth of merchandise acquired from Sam on which it has
a reported profit of 1,000. On the other hand, the beginning inventory of Sam includes 3,000 of
merchandise acquired from Pam at 35% markup.
The net income from own operations of Pam and Sam are 100,000 and 30,000 respectively. While the
dividends paid by Pam and Sam are 60,000 and 10,000 respectively. Sam and Pam’s Sales were 500,000
and 1,100,000 respectively. While their Cost of Sales are 720,000 and 880,000 for Sam and Pam
respectively.
Requirements: