Parson Company acquired an 80 percent interest in Syber Comp

Parson Company acquired an 80 percent interest in Syber Company on January 1, 2017. Any portion of Syber\'s business fair value in excess of its corresponding book value was assigned to trademarks. This intangible asset has subsequently undergone annual amortization based on a 15-year life. Over the past two years, regular intra-entity inventory sales transpired between the two companies. No payment has yet been made on the latest transfer. All dividends are paid in the same period as declared. The individual financial statements for the two companies as well as consolidated totals for 2018 follow:

Solution

Since, there are multiple sub-parts to the question and each part requires a lot of analysis and calculation, I was able to complete Part a to Part g within the available time.

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Part a)

The method that will be used by Parson to account for its investment in Syber would be \"Partial Equity Method\".

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Part b)

The balance of intra-entity inventory gross profit deferred at the end of the current period is arrived as below:

Intra-Entity Inventory Gross Profit Deferred at the End of the Current Period = Parson Company Inventory + Syber Company Inventory - Consolidated Total of Inventory = 212,000 + 204,000 - 395,500 = $20,500

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Part c)

The amount that was originally allocated to trademarks is determined as below:

Amount Originally Allocated to Trademarks = (Total Consolidated Operating Expenses - Operating Expenses for Parson Company - Operating Expenses for Syber Company)*Estimated Life of Consolidation = (312,000 - 144,000 - 166,000)*15 = $30,000

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Part d)

The value of current year intra-entity inventory sales is arrived as follows:

Current Year Intra-Entity Inventory Sales = Parson Company Sales + Syber Company Sales - Consolidated Total of Sales = 1,020,000 + 820,000 - 1,676,000 = $164,000

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Part e)

The intra-entity inventory sales made were \"Upstream\". It is because the value of non-controlling interest in Syber\'s income ($25,200) is not equal to 20% of Syber\'s income (144,000) reduced by excess amortization (2,000) which indicates that realized net income was reported after adjustment for unrealized gross profits. Any adjustment to subisidiary income is made to record the effects of upstream transfers.

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Part f)

The balance of the intra-entity liability is calculated as follows:

Balance of Intra-Entity Liability = Parson Company Liability + Syber Company Liability - Consolidated Total of Liabilities = 380,000 + 125,000 - 441,100 = $63,900

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Part g)

The amount of intra-entity gross profit that was deferred from the preceeding period and recognized in the current period is calculated as below:

Intra-Entity Gross Deferred from the Preceeding Period = Unrealized Profit as Calculated in Part b) + Parson Cost of Goods Sold + Syber Cost of Goods Sold - Current Year Intra-Entity Inventory Sales - Consolidated Total of Cost of Goods Sold = 20,500 + 610,000 + 510,000 - 164,000 - 965,000 = $11,500