Reference no: EM132918763
Question - On January 1, Year 2022, Patti Ltd. acquired 70% of Sammi Inc. when Sammi's retained earnings were $1,000,000. There was no acquisition differential. Patti accounts for its investment under the cost method.
Sammi sells inventory to Patti on a regular basis at a markup of 25% of selling price. The intercompany sales were $160,000 in Year 2022 and $190,000 in Year 2023. The total amount owing by Patti related to these intercompany sales was $60,000 at the end of Year 2022 and $50,000 at the end of Year 2023.
On January 1, Year 2023, the inventory of Patti contained goods purchased from Sammi amounting to $70,000, while the December 31, Year 2023, inventory contained goods purchased from SAT amounting to $80,000. Both companies pay income tax at the rate of 30%.
Selected account balances from the records of Patti and Sammi for the year ended December 31, Year 2023, were as follows (both companies have January to December fiscal years):
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Patti
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Sammi
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Inventory
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$530,000
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$350,000
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Accounts payable
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700,000
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420,000
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Retained earnings, January 1, 2023
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2,500,000
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1,200,000
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Sales
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4,100,000
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2,600,000
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Cost of sales
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3,200,000
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1,800,000
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Income tax expense
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180,000
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150,000
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Required - Determine the amount to report on the Year 2023 consolidated financial statements for the selected accounts noted above. Hint: you may find it helpful to make an inter-company inventory profit analysis and consolidation worksheet entries to guide your calculations.
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