Subject: Business / Accounting
QuestionPlacid Lake Corporation acquired 70 percent of the outstanding voting stock of Scenic, Inc., on January 1, 2014, when Scenic had a net book value of $530,000. Any excess fair value was assigned to intangible assets and amortized at a rate of $6,000 per year.Placid Lake’s 2015 net income before consideration of its relationship with Scenic (and before adjustments for intra-entity sales) was $430,000. Scenic reported net income of $240,000. Placid Lake declared 0,000 in dividends during this period; Scenic paid $53,000. At the end of 2015, selected figures from the two companies’ balance sheets were as follows:Placid Lake Scenic Inventory $ 270,000 $ 103,000 Land 730,000 330,000 Equipment (net) 530,000 430,000 During 2014, intra-entity sales of $140,000 (original cost of $68,000) were made. Only 10 percent of this inventory was still held within the consolidated entity at the end of 2014. In 2015, $220,000 in intra-entity sales were made with an original cost of $72,000. Of this merchandise, 20 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 2015.a. What is consolidated net income for Placid Lake and its subsidiary?b. If the intra-entity sales were upstream, how would consolidated net income be allocated to the controlling and noncontrolling interest?c. If the intra-entity sales were downstream, how would consolidated net income be allocated to the controlling and noncontrolling interest?d-1. Assume that no intra-entity inventory or land sales occurred between Placid Lake and Scenic. Instead, on January 1, 2014, Scenic sold equipment (that originally cost $120,000 but had a $73,000 book value on that date) to Placid Lake for $96,000. At the time of sale, the equipment had a remaining useful life of five years. What worksheet entries are made for a December 31, 2015, consolidation of these two companies to eliminate the impact of the intra-entity transfer? (If no entry is required for a transaction/event, select “No journal entry required” in the first account field.)– prepare entry *TA– prepare entry EDd-2. For 2015, what is the noncontrolling interest’s share of Scenic’s net income?