Question: The separate income statements of Coors Company
The separate income statements of Coors Company and its 60% owned subsidiary, Vespa Company, for the year ended December 31, 2017, are as follows:
The following additional information is available:
a. Coors Company acquires its interest in Vespa Company on July 1, 2015. The excess of cost over book value is attributable to machinery which is undervalued by a total amount of $100,000. The remaining life of the machine is 20 years.
b. Vespa Company sells a machine to Coors Company on December 31, 2016, for $10,000. This machine has a book value of $6,000 and an estimated future life of four years at the purchase date. Straight-line depreciation is assumed.
c. Coors Company sells $15,000 worth of merchandise to Vespa Company during 2017. Cooper sells its merchandise at a price that enables it to realize a gross profit of 25%. Vespa Company has $2,000 worth of Coors merchandise in its ending inventory.
d. A corporate income tax rate of 30% is assumed.
Prepare the worksheet adjustments (in journal entry format) pertaining to the purchase cost
amortization and the intercompany transactions, and prepare the interperiod tax allocations
that result from the elimination of the intercompany transactions. The companies do not qualify
as an affiliated group under the tax code.
Transcribed Image Text:
Coors Vespa Company Company $520,000 350,000 $370,000 180,000 Sales ... Less cost of goods sold. .. Gross profit .... Less operating expenses $170,000 100,000 $190,000 90,000 Operating income. $ 70,000 $100,000 Coors Vespa Company Company Subsidiary (dividend) income 12,600 $ 82,600 $100,000 30,000 Income before tax Provision for income tax 21,756 Net income $ 60,844 $ 70,000
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