Exam 7: Intercompany Transfers of Services and Noncurrent Assets

Mortar Corporation acquired 80 percent of Granite Corporation's voting common stock on January 1,20X7.On January 1,20X8,Mortar received $350,000 from Granite for equipment Mortar had purchased on January 1,20X5,for $400,000.The equipment is expected to have a 10-year useful life and no salvage value.Both companies depreciate equipment on a straight-line basis. -Based on the preceding information,in the preparation of elimination entries related to the equipment transfer for the 20X8 consolidated financial statements,net effect on accumulated depreciation will be:

Sky Corporation owns 75 percent of Earth Company's stock.On July 1,20X8,Sky sold a building to Earth for $33,000.Sky had purchased this building on January 1,20X6,for $36,000.The building's original eight-year estimated total economic life remains unchanged.Both companies use straight-line depreciation.The equipment's residual value is considered negligible. -Based on the information provided,in the preparation of the 20X8 consolidated financial statements,building will be _____ in the eliminating entries.

Peanut Company acquired 75 percent of Snoopy Company's stock at underlying book value on January 1,20X8.At that date,the fair value of the noncontrolling interest was equal to 25 percent of the book value of Snoopy Company.Snoopy Company reported shares outstanding of $350,000 and retained earnings of $100,000.During 20X8,Snoopy Company reported net income of $60,000 and paid dividends of $3,000.In 20X9,Snoopy Company reported net income of $90,000 and paid dividends of $15,000.The following transactions occurred between Peanut Company and Snoopy Company in 20X8 and 20X9: Snoopy Co.sold equipment to Peanut Co.for a $42,000 gain on December 31,20X8.Snoopy Co.had originally purchased the equipment for $140,000 and it had a carrying value of $28,000 on December 31,20X8.At the time of the purchase,Peanut Co.estimated that the equipment still had a seven-year remaining useful life. Peanut sold land costing $90,000 to Snoopy Company on June 28,20X9,for $110,000. Required: Give all eliminating entries needed to prepare a consolidation worksheet for 20X9 assuming that Peanut Co.uses the cost method to account for its investment in Snoopy Company.

Sky Corporation owns 75 percent of Earth Company's stock.On July 1,20X8,Sky sold a building to Earth for $33,000.Sky had purchased this building on January 1,20X6,for $36,000.The building's original eight-year estimated total economic life remains unchanged.Both companies use straight-line depreciation.The equipment's residual value is considered negligible. -Based on the information provided,while preparing the 20X8 consolidated income statement,depreciation expense will be:

On January 1,20X9,Light Corporation sold equipment for $400,000 to Star Corporation,its wholly owned subsidiary.Light had paid $900,000 for this equipment,which had accumulated depreciation of $170,000.Light estimated a $50,000 salvage value and depreciated the tractor using the straight-line method over 10 years,a policy that Star continued.In Light's December 31,20X9,consolidated balance sheet,this tractor should be included in fixed-asset cost and accumulated depreciation as:

Parent Company owns 70% of Son Company's outstanding stock.During 20X1 Son Company sold land to Parent Company for a gain of $25,000.Parent company held the land all of 20X1.The gain on the sale to Parent should be:

On January 1,20X7,Servant Company purchased a machine with an expected economic life of five years.On January 1,20X9,Servant sold the machine to Master Corporation and recorded the following entry: Master Corporation holds 75 percent of Servant's voting shares.Servant reported net income of $50,000,and Master reported income from its own operations of $100,000 for 20X9.There is no change in the estimated economic life of the equipment as a result of the intercorporate transfer. -Based on the preceding information,consolidated net income for 20X9 will be:

Pie Company acquired 75 percent of Strawberry Company's stock at the underlying book value on January 1,20X8.At that date,the fair value of the noncontrolling interest was equal to 25 percent of the book value of Strawberry Company.Strawberry Company reported shares outstanding of $350,000 and retained earnings of $100,000.During 20X8,Strawberry Company reported net income of $60,000 and paid dividends of $3,000.In 20X9,Strawberry Company reported net income of $90,000 and paid dividends of $15,000.The following transactions occurred between Pie Company and Strawberry Company in 20X8 and 20X9: Strawberry Co.sold equipment to Pie Co.for a $42,000 gain on December 31,20X8.Strawberry Co.had originally purchased the equipment for $140,000 and it had a carrying value of $28,000 on December 31,20X8.At the time of the purchase,Pie Co.estimated that the equipment still had a seven-year remaining useful life. Pie Co.sold land costing $90,000 to Strawberry Co.on June 28,20X9,for $110,000. Required: Give all eliminating entries needed to prepare a consolidation worksheet for 20X9 assuming that Pie Co.uses the fully adjusted equity method to account for its investment in Strawberry Company.

Mortar Corporation acquired 80 percent of Granite Corporation's voting common stock on January 1,20X7.On January 1,20X8,Mortar received $350,000 from Granite for equipment Mortar had purchased on January 1,20X5,for $400,000.The equipment is expected to have a 10-year useful life and no salvage value.Both companies depreciate equipment on a straight-line basis. -Based on the preceding information,in the preparation of the 20X8 consolidated financial statements,equipment will be:

ABC Corporation purchased land on January 1,20X6,for $50,000.On July 15,20X8,it sold the land to its subsidiary,XYZ Corporation,for $70,000.ABC owns 80 percent of XYZ's voting shares. -Based on the preceding information,what will be the worksheet eliminating entry to remove the effects of the intercompany sale of land in preparing the consolidated financial statements for 20X8?

Parent Corporation purchased land from S1 Corporation for $220,000 on December 26,20X8.This purchase followed a series of transactions between P-controlled subsidiaries.On February 15,20X8,S3 Corporation purchased the land from a nonaffiliate for $160,000.It sold the land to S2 Company for $145,000 on October 19,20X8,and S2 sold the land to S1 for $197,000 on November 27,20X8.Parent has control of the following companies: Parent reported income from its separate operations of $200,000 for 20X8. -Based on the preceding information,at what amount should the land be reported in the consolidated balance sheet as of December 31,20X8?

Sky Corporation owns 75 percent of Earth Company's stock.On July 1,20X8,Sky sold a building to Earth for $33,000.Sky had purchased this building on January 1,20X6,for $36,000.The building's original eight-year estimated total economic life remains unchanged.Both companies use straight-line depreciation.The equipment's residual value is considered negligible. -Based on the information provided,the gain on sale of the building eliminated in the consolidated financial statements for 20X8 is:

Mortar Corporation acquired 80 percent of Granite Corporation's voting common stock on January 1,20X7.On December 31,20X8,Mortar received $390,000 from Granite for equipment Mortar had purchased on January 1,20X5,for $400,000.The equipment is expected to have a 10-year useful life and no salvage value.Both companies depreciate equipments on a straight-line basis. -Based on the preceding information,in the preparation of elimination entries related to the equipment transfer for the 20X9 consolidated financial statements,the net effect on accumulated depreciation will be:

Parent Corporation purchased land from S1 Corporation for $220,000 on December 26,20X8.This purchase followed a series of transactions between P-controlled subsidiaries.On February 15,20X8,S3 Corporation purchased the land from a nonaffiliate for $160,000.It sold the land to S2 Company for $145,000 on October 19,20X8,and S2 sold the land to S1 for $197,000 on November 27,20X8.Parent has control of the following companies: Parent reported income from its separate operations of $200,000 for 20X8. -Based on the preceding information,what should be the amount of income assigned to the controlling shareholders in the consolidated income statement for 20X8?

Sky Corporation owns 75 percent of Earth Company's stock.On July 1,20X8,Sky sold a building to Earth for $33,000.Sky had purchased this building on January 1,20X6,for $36,000.The building's original eight-year estimated total economic life remains unchanged.Both companies use straight-line depreciation.The equipment's residual value is considered negligible. -Based on the information provided,in the preparation of the 20X9 consolidated income statement,depreciation expense will be:

Blue Corporation holds 70 percent of Black Company's voting common stock.On January 1,20X3,Black paid $500,000 to acquire a building with a 10-year expected economic life.Black uses straight-line depreciation for all depreciable assets.On December 31,20X8,Blue purchased the building from Black for $180,000.Blue reported income,excluding investment income from Black,of $140,000 and $162,000 for 20X8 and 20X9,respectively.Black reported net income of $30,000 and $45,000 for 20X8 and 20X9,respectively. -Based on the preceding information,the amount to be reported as consolidated net income for 20X8 will be:

Mortar Corporation acquired 80 percent of Granite Corporation's voting common stock on January 1,20X7.On January 1,20X8,Mortar received $350,000 from Granite for equipment Mortar had purchased on January 1,20X5,for $400,000.The equipment is expected to have a 10-year useful life and no salvage value.Both companies depreciate equipment on a straight-line basis. -Based on the preceding information,in the preparation of elimination entries related to the equipment transfer for the 20X9 consolidated financial statements,net effect on accumulated depreciation will be:

On January 1,20X7,Servant Company purchased a machine with an expected economic life of five years.On January 1,20X9,Servant sold the machine to Master Corporation and recorded the following entry: Master Corporation holds 75 percent of Servant's voting shares.Servant reported net income of $50,000,and Master reported income from its own operations of $100,000 for 20X9.There is no change in the estimated economic life of the equipment as a result of the intercorporate transfer. -Based on the preceding information,in the preparation of the 20X9 consolidated balance sheet,machine will be:

Big Corporation receives management consulting services from its 92 percent owned subsidiary,Small Inc.During 20X7,Big paid Small $125,432 for its services.For the year 20X8,Small billed Big $140,000 for such services and collected all but $7,900 by year-end.Small's labor cost and other associated costs for the employees providing services to Big totaled $86,000 in 20X7 and $121,000 in 20X8.Big reported $2,567,000 of income from its own separate operations for 20X8,and Small reported net income of $695,000. -Based on the preceding information,what amount of consolidated net income should be reported in 20X8?

Parent Corporation purchased land from S1 Corporation for $220,000 on December 26,20X8.This purchase followed a series of transactions between P-controlled subsidiaries.On February 15,20X8,S3 Corporation purchased the land from a nonaffiliate for $160,000.It sold the land to S2 Company for $145,000 on October 19,20X8,and S2 sold the land to S1 for $197,000 on November 27,20X8.Parent has control of the following companies: Parent reported income from its separate operations of $200,000 for 20X8. -Based on the preceding information,what amount of gain or loss on sale of land should be reported in the consolidated income statement for 20X8?