Exam 7: Elimination of Unrealized Gains or Losses on Intercompany Sales of Property and Equipment

In what period and in what manner should profits relating to the intercompany sale of depreciable property and equipment be recognized in the consolidated financial statements?

When preparing consolidated financial statement workpapers, unrealized intercompany gains, as a result of equipment or inventory sales by affiliates, are allocated proportionately by percent of ownership between parent and subsidiary only when the selling affiliate is

Petunia Corporation owns 100% of Stone Company's common stock.On January 1, 2014, Petunia sold equipment with a book value of $210,000 to Stone for $300,000.Stone is depreciating the equipment over a ten-year life by the straight-line method.The net adjustments to compute 2014 and 2015 consolidated income would be an increase (decrease) of

In 2014, P Company sells land to its 80% owned subsidiary, S Company, at a gain of $50,000.What is the effect of this sale of land on consolidated net income assuming S Company still owns the land at the end of the year?

P Company purchased land from its 80% owned subsidiary at a cost of $30,000 greater than it subsidiary's book value.Two years later P sold the land to an outside entity for $15,000 more than it's cost.In its current year consolidated income statement P and its subsidiary should report a gain on the sale of land of:

Should the CEO or CFO be a past employee of the firm's audit firm?

P Corporation acquired an 80% interest in S Corporation two years ago at an implied value equal to the book value of S.On January 2, 2014, S sold equipment with a five-year remaining life to P for a gain of $120,000.S reports net income of $600,000 for 2014 and pays dividends of $200,000.P's Equity from Subsidiary Income for 2014 is:

On January 1, 2008, Perry Company purchased a 90% interest in Sludge Company for $800,000, the same as the book value on that date.On January 1, 2014, Sludge sold new equipment to Perry for $16,000.The equipment cost $11,000 and had a five year estimated life as of January 1, 2014. During 2015, Perry sold merchandise to Sludge at 20% above cost in the amount (selling price) of $126,000.At the end of the year, Sludge had $42,000 of this merchandise in its ending inventory.At the beginning of 2015, Sludge had $48,000 of inventory purchased in 2014 from Perry. Required: A.Prepare all workpaper entries necessary to eliminate the effects of the intercompany sales on the consolidated financial statements for 2015. B.Calculate the amount of noncontrolling interest to be deducted from consolidated net income in the consolidated income statement for 2015.Sludge Company reported $40,000 of net income in 2015.

P Corp.owns 90% of the outstanding common stock of S Company.On December 31, 2014, S sold equipment to P for an amount greater than the equipment's book value but less than its original cost.The equipment should be reported on the December 31, 2014 consolidated balance sheet at

Company S sells equipment to its parent company (P) at a gain.In years subsequent to the year of the intercompany sale, a workpaper entry is made under the cost method debiting

P Corporation acquired an 80% interest in S Corporation two years ago at an implied value equal to the book value of S.On January 2, 2014, S sold equipment with a five-year remaining life to P for a gain of $180,000.S reports net income of $900,000 for 2014 and pays dividends of $300,000.P's Equity from Subsidiary Income for 2014 is:

In the year an 80% owned subsidiary sells equipment to its parent company at a gain, the noncontrolling interest in consolidated income is calculated by multiplying the noncontrolling interest percentage by the subsidiary's reported net income

On January 1, 2013, P Corporation sold equipment with a 3-year remaining life and a book value of $40,000 to its 70% owned subsidiary for a price of $46,000.In the consolidated workpapers for the year ended December 31, 2014, an elimination entry for this transaction will include a:

In January 2008, S Company, an 80% owned subsidiary of P Company, sold equipment to P Company for $1,980,000.S Company's original cost for this equipment was $2,000,000 and had accumulated depreciation of $200,000.P Company continued to depreciate the equipment over its 9 year remaining life using the straight-line method.This equipment was sold to a third party on January 1, 2014 for $1,440,000.What amount of gain should P Company record on its books in 2014?

The amount of the adjustment to the noncontrolling interest in consolidated net assets is equal to the noncontrolling interest's percentage of the

Patriot Corporation owns 100% of Simon Company's common stock.On January 1, 2014, Patriot sold equipment with a book value of $350,000 to Simon for $500,000.Simon is depreciating the equipment over a ten-year life by the straight-line method.The net adjustments to compute 2014 and 2015 consolidated income would be an increase (decrease) of

From a consolidated point of view, when should profit be recognized on intercompany sales of depreciable assets? Nondepreciable assets?

On January 1, 2014, Pharma Company purchased equipment from its 80%-owned subsidiary for $2,400,000.On the date of the sale, the carrying value of the equipment on the books of the subsidiary company was $1,800,000.The equipment had a remaining useful life of six years on January 2014.On January 1, 2015, Pharma Company sold the equipment to an outside party for $2,200,000. Required: A.Prepare, in general journal form, the entries necessary in 2014 and 2015 on the books of Pharma Company to account for the purchase and sale of the equipment. B.Determine the consolidated gain or loss on the sale of the equipment and prepare, in general journal form, the entry necessary on the December 31, 2015 consolidated statements workpaper to properly reflect this gain or loss.

Gain or loss resulting from an intercompany sale of equipment between a parent and a subsidiary is

Prince Company owns 104,000 of the 130,000 shares outstanding of Serf Corporation.Serf Corporation sold equipment to Prince Company on January 1, 2014 for $740,000.The equipment was originally purchased by Serf Corporation on January 1, 2013 for $1,280,000 and at that time its estimated depreciable life was 8 years.The equipment is estimated to have a remaining useful life of four years on January 1, 2014.Both companies use the straight-line method to depreciate equipment.In 2015 Prince Company reported net income from its independent operations of $3,270,000, and Serf Corporation reported net income of $820,000 and declared dividends of $60,000.Prince Company uses the cost method to record the investment in Serf Company. Required: A.Prepare, in general journal form, the workpaper entries relating to the intercompany sale of equipment that are necessary in the December 31, 2015 consolidated financial statements workpapers. B.Calculate the amount of noncontrolling interest to be deducted from consolidated net income in the consolidated income statement for 2015. C.Calculate controlling interest in consolidated net income for 2015.