Reference no: EM132419162

Problem: Green Tree's 2018 net income before consideration of its relationship with Horizon (and before adjustments for intra-entity sales) was $390,000. Horizon reported net income of $200,000. Green Tree declared $190,000 in dividends during this period; Horizon paid $49,000. At the end of 2018, selected figures from the two companies' balance sheets were as follows:

Green Tree Horizon

Inventory $230,000  $99,000 

Land  $690,000   $290,000 

Equipment (net)  $490,000   $390,000 

During 2017, intra-entity sales of $120,000 (original cost of $60,000) were made. Only 30 percent of this inventory was still held within the consolidated entity at the end of 2017. In 2018, $180,000 in intra-entity sales were made with an original cost of $68,000. Of this merchandise, 40 percent had not been resold to outside parties by the end of the year.

Each of the following questions should be considered as an independent situation for the year 2018.

Question 1: What is consolidated net income for Green Tree and its subsidiary?

Question 2: If the intra-entity sales were upstream, how would consolidated net income be allocated to the controlling and noncontrolling interest?

Question 3: If the intra-entity sales were downstream, how would consolidated net income be allocated to the controlling and noncontrolling interest?

Question 4: What is the consolidated balance in the ending Inventory account?

Question 5: Assume that no intra-entity inventory sales occurred between Green Tree and Horizon. Instead, in 2017, Horizon sold land costing $39,000 to Green Tree for $68,000. On the 2018 consolidated balance sheet, what value should be reported for land?

Question 6: Assume that no intra-entity inventory or land sales occurred between Green Tree and Horizon. Instead, on January 1, 2017, Horizon sold equipment (that originally cost $190,000 but had a $69,000 book value on that date) to Green Tree for $98,000. At the time of sale, the equipment had a remaining useful life of five years. What worksheet entries are made for a December 31, 2018, consolidation of these two companies to eliminate the impact of the intra-entity transfer?

Question 7: For 2018, what is the noncontrolling interest's share of Horizon's net income?