Question: Following are several figures reported for Preston and Sanchez as of December 31, 2011: Preston Sanchez

Inventory $ 400,000 $ 200,000 Sales 800,000 600,000 Investment income not given Cost of goods sold 400,000 300,000 Operating expenses 180,000 250,000 -------------------------------------------------------------------------------Preston acquired 70 percent of Sanchez in January 2010. In allocating the newly acquired subsidiarys fair value at the acquisition date, Preston noted that Sanchez having developed a customer list worth $65,000 unrecorded on its accounting records and having a five-year remaining life. Any remaining excess fair value over Sanchezs book value was attributed to goodwill. During 2011, Sanchez sells inventory costing $120,000 to Preston for $160,000. Of this amount, 20 percent remains unsold in Prestons warehouse at year-end. For Prestons consolidated reports, determine the following amounts to be reported for the current year. Inventory $ Sales $ Cost of Goods Sold $ Operating Expenses $ Non controlling Interest in the Subsidiarys Net Income Solution: Computation of the following Inventory = $592,000 (400000+200000-8000) Sales = $1,240,000 (800,000+400,000-160,000 (intra-entity transfer)) Cost of goods sold = $548,000 (400,000+300,000-160000+8000) Operating expenses = $443,000 (180,000+250,000+13000 (this figure calculated below) Non controlling interest in subsidiary's net income = $8,700 (30 % of the income after less 13,000 more fair value amortization and deferring $8,000 ending unrealized gross profit) Working notes: Customer list amortization = $65,000 5 years = Intra-entity gross profit ($160,000 $120,000) Inventory remaining at year's end $13,000 per year $40,000 20%

Unrealized intra-entity gross profit, 12/31

$8,000