Reference no: EM133119294
Question - YIN Inc. purchased 75% of the voting shares of YANG Inc for $500,000 on July 1, 2017. On that date, YANG Inc.'s Common Shares and Retained Earnings were valued at $200,000 and $100,000 respectively. Unless otherwise stated, assume that YIN uses the cost method to account for its investment in YANG Inc.
YANG's fair values approximated its carrying values with the following exception:
YANG's bonds payable had a fair value which was $50,000 higher than their carrying value.
The bonds payable mature on July 1, 2027. Both companies use straight line amortization exclusively.
The Financial Statements of both companies for the Year ended June 30, 2020 are shown below:
|
Income Statements
|
YIN Inc.
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YANG Inc.
|
|
Sales
|
$500,000
|
$400,000
|
|
Other Revenues
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$100,000
|
$60,000
|
|
Less: Expenses
|
|
|
|
Cost of Goods Sold
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$400,000
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$320,000
|
|
Depreciation Expense
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$20,000
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$10,000
|
|
Other Expenses
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$60,000
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$30,000
|
|
Income Tax Expense
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$48,000
|
$40,000
|
|
Net Income
|
$72,000
|
$60,000
|
|
Retained Earnings Statements
|
YIN Inc.
|
YANG Inc.
|
|
Balance, July 1, 2019
|
$200,000
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$240,000
|
|
Net Income
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$72,000
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$60,000
|
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Less: Dividends
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($22,000)
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($30,000)
|
|
Retained Earnings, June 30, 2020
|
$250,000
|
$270,000
|
|
Balance Sheets
|
|
|
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YIN Inc.
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YANG Inc.
|
|
Cash
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$150,000
|
$120,000
|
|
Accounts Receivable
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$350,000
|
$160,000
|
|
Inventory
|
$200,000
|
$180,000
|
|
Investment in YANG Inc.
|
$500,000
|
|
|
Land
|
$40,000
|
|
|
Equipment (net)
|
$360,000
|
$240,000
|
|
Total Assets
|
$1,600,000
|
$700,000
|
|
Current Liabilities
|
$600,000
|
$130,000
|
|
Bonds Payable
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$250,000
|
$100,000
|
|
Common Shares
|
$500,000
|
$200,000
|
|
Retained Earnings
|
$250,000
|
$270,000
|
|
Total Liabilities and Equity
|
$1,600,000
|
$700,000
|
Other Information:
During August of 2018, YIN sold $60,000 worth of Inventory to YANG, 80% of which was sold to outsiders during the year. During October of 2019, YIN sold inventory to YANG for $90,000 of which two-thirds of this inventory was resold by YANG to outside parties later that year.
During September of 2018, YANG sold $90,000 worth of inventory to YIN, 50% of which was sold to outsiders during the year. During April of 2020, Yang sold inventory to YIN for $120,000. 80% of this inventory was resold by YANG to outside parties in May.
During May of 2020, YANG sold a plot of Land to YIN for $40,000. The land was recorded at cost of $24,000 on YANG's books prior to the sale. YIN has not yet sold the land.
All intercompany sales as well as sales to outsiders are priced 50% above cost. The effective tax rate for both companies is 40%.
Prepare YIN's Consolidated Income Statement for the Year ended June 30, 2020. Show the allocation of the consolidated net income between the controlling and non-controlling interests.