Penguin Corporation acquired 80 percent of the outstanding voting stock of Snow Company on January 1, 2010, for $420,000 in cash and other consideration. At the acquisition date, Penguin assessed Snow’s identifiable assets and liabilities at a collective net fair value of $525,000 and the fair value of the 20 percent noncontrolling interest was $105,000. No excess fair value over book value amortization accompanied the acquisition.

The following selected account balances are from the individual financial records of these two companies as of December 31, 2011:

Penguin	Snow
Sales	$640,000	$360,000
Cost of goods sold	290,000	197,000
Operating expenses	150,000	105,000
Retained earnings, 1/1/11	740,000	180,000
Inventory	346,000	110,000
Buildings (net)	358,000	157,000
Investment income	Not given	–0–

a. Assume that Penguin sells Snow inventory at a markup equal to 40 percent of cost. Intra-entity transfers were $90,000 in 2010 and $110,000 in 2011. Of this inventory, Snow retained and then sold $28,000 of the 2010 transfers in 2011 and held $42,000 of the 2011 transfers until 2012. On consolidated financial statements for 2011, determine the balances that would appear for the following accounts:

Cost of Goods Sold

Inventory

Noncontrolling Interest in Subsidiary’s Net Income

b. Assume that Snow sells inventory to Penguin at a markup equal to 40 percent of cost. Intra-entity transfers were $50,000 in 2010 and $80,000 in 2011. Of this inventory, $21,000 of the 2010 transfers were retained and then sold by Penguin in 2011, whereas $35,000 of the 2011 transfers were held until 2012.

On consolidated financial statements for 2011, determine the balances that would appear for the following accounts:

Cost of Goods Sold

Inventory

Noncontrolling Interest in Subsidiary’s Net Income

c. Penguin sells Snow a building on January 1, 2010, for $80,000, although its book value was only $50,000 on this date. The building had a five-year remaining life and was to be depreciated using the straight-line method with no salvage value.

Determine the balances that would appear on consolidated financial statements for 2011 for Buildings (net)

Operating Expenses

Noncontrolling Interest in Subsidiary’s Net Income