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

P Company purchased land from its 80% owned subsidiary at a cost of $100,000 greater than it subsidiary's book value. Two years later P sold the land to an outside entity for $50,000 more than P's cost. In its current year consolidated income statement P and its subsidiary should report a gain on the sale of land of:

P Company bought 60% of the common stock of S Company on January 1, 2017. On January 1, 2017 there was an intercompany sale of equipment at a gain of $63,000. The equipment had an estimated remaining life of six years. Net incomes of the two companies from their own operations (including sales to affiliates) were as follows: A. If S Company sold the equipment to P Company, fill in the following matrix: B. If P Company sold the equipment to S Company, fill in the following matrix:

In January 2013, 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, 2017 for $1,440,000. What amount of gain should P Company record on its books in 2017?

In 2017, 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 Corporation acquired 80% of the outstanding voting stock of S Corporation when the fair values equaled the book values. On July 1, 2016, P sold land to S for $300,000. The land originally cost P $200,000. S recently resold the land on October 30, 2017 for $350,000. On October 1, 2017, S Corporation sold equipment to P Corporation for $80,000. S originally paid $100,000 for this equipment and had accumulated depreciation of $40,000 thus far. The equipment has a five-year remaining life. Required: A. Complete the consolidated income statement for P Corporation and subsidiary for the year ended December 31, 2017.

On January 1, 2017, 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 2017. On January 1, 2018, Pharma Company sold the equipment to an outside party for $2,200,000. Required: A. Prepare, in general journal form, the entries necessary in 2017 and 2018 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, 2018 consolidated statements workpaper to properly reflect this gain or loss.

Patriot Corporation owns 100% of Simon Company's common stock. On January 1, 2017, 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 2017 and 2018 consolidated income would be an increase (decrease) of:

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, 2017, 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 2017 and pays dividends of $300,000. P's Equity from Subsidiary Income for 2017 is:

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

On January 1, 2016 S Corporation sold equipment that cost $120,000 and had a book value of $48,000 to P Corporation for $60,000. P Corporation owns 100% of S Corporation and the equipment has a 4-year remaining life. What is the effect of the sale on P Corporation's Equity from Subsidiary Income account for 2017?

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:

An eliminating entry is needed to adjust the consolidated financial statements when the purchasing affiliate sells a depreciable asset that was acquired from another affiliate. Describe the necessary eliminating entry.

In the year a subsidiary sells land to its parent company at a gain, a workpaper entry is made debiting: