Exam 7: Intercompany Transfers of Services and Noncurrent Assets

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 consolidating 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.

Patch Corporation purchased land from Sub1 Corporation for $350,000 on December 3,20X5.This purchase followed a series of transactions between Patch-controlled subsidiaries.On January 23,20X5,Sub3 Corporation purchased the land from a nonaffiliate for $240,000.It sold the land to Sub2 Company for $220,000 on July 15,20X5,and Sub2 sold the land to Sub1 for $305,000 on September 5,20X5.Patch has control of the following companies: Patch reported income from its separate operations of $345,000 for 20X5. -Based on the preceding information,at what amount should the land be reported in the consolidated balance sheet as of December 31,20X5?

A wholly owned subsidiary sold land to its parent during the year at a gain.The parent continues to hold the land at the end of the year.The amount to be reported as consolidated net income for the year should equal:

A parent sold land to its partially owned subsidiary during the year at a loss.The subsidiary continues to hold the land at the end of the year.The amount to be reported as consolidated net income for the year should equal:

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

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

Pat Corporation acquired 80 percent of Smack Corporation's voting common stock on January 1,20X7.On December 31,20X8,Pat received $390,000 from Smack for equipment Pat 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 20X9 consolidated income statement,depreciation expense will be:

Patch Corporation purchased land from Sub1 Corporation for $350,000 on December 3,20X5.This purchase followed a series of transactions between Patch-controlled subsidiaries.On January 23,20X5,Sub3 Corporation purchased the land from a nonaffiliate for $240,000.It sold the land to Sub2 Company for $220,000 on July 15,20X5,and Sub2 sold the land to Sub1 for $305,000 on September 5,20X5.Patch has control of the following companies: Patch reported income from its separate operations of $345,000 for 20X5. -Based on the preceding information,what amount of gain or loss on the sale of land should be reported in the consolidated income statement for 20X5?

Pat Corporation acquired 80 percent of Smack Corporation's voting common stock on January 1,20X7.On December 31,20X8,Pat received $390,000 from Smack for equipment Pat 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 consolidation entries related to the equipment transfer for the 20X9 consolidated financial statements,the net effect on accumulated depreciation will be:

Peter Architectural Services owns 100 percent of Smith Manufacturing.During the course of 20X8 Peter provides $100,000 of architectural services associated with Smith's new manufacturing facility,which will open January 4,20X9,and has a 5 year useful life.Explain the impact providing this service has on Peter Architectural Services' 20X8 and 20X9 consolidated financial statements.

Pumpkin Corporation purchased land on January 1,20X6,for $50,000.On July 15,20X8,it sold the land to its subsidiary,Spice Corporation,for $70,000.Pumpkin owns 80 percent of Spice's voting shares. -Based on the preceding information,what will be the worksheet consolidating entry to remove the effects of the intercompany sale of land in preparing the consolidated financial statements for 20X9?

Pillar Company owns 70 percent of Salt Company's outstanding common stock.On December 31,20X8,Salt sold equipment to Pillar at a price in excess of Salt's carrying amount,but less than its original cost.On a consolidated balance sheet at December 31,20X8,the carrying amount of the equipment should be reported at:

Pluto Corporation owns 70 percent of Saturn Company's stock.On July 1,20X4,Pluto sold a piece of equipment to Saturn for $56,350.Pluto had purchased this equipment on January 1,20X1,for $63,000.The equipment's original 15-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 the sale of the equipment eliminated in the consolidated financial statements for 20X4 is

Plesco Corporation acquired 80 percent of Slesco Corporation's voting common stock on January 1,20X7.On January 1,20X8,Plesco received $350,000 from Slesco for equipment Plesco 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:

Paper Corporation owns 75 percent of Scissor Company's stock.On July 1,20X8,Paper sold a building to Scissor for $33,000.Paper 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 building'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 consolidating entries.

Plesco Corporation acquired 80 percent of Slesco Corporation's voting common stock on January 1,20X7.On January 1,20X8,Plesco received $350,000 from Slesco for equipment Plesco 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,the gain on sale of equipment recorded by Plesco for 20X8 is:

Pancake Corporation purchased land on January 1,20X0,for $60,000.On August 7,20X2,it sold the land to its subsidiary,Syrup Corporation,for $35,000.Pancake owns 60 percent of Syrup's voting shares. -Based on the preceding information,what will be the worksheet consolidation entry to remove the effects of the intercompany sale of land in preparing the consolidated financial statements for 20X3?

On January 1,20X7,Server Company purchased a machine with an expected economic life of five years.On January 1,20X9,Server sold the machine to Patron Corporation and recorded the following entry: Patron Corporation holds 75 percent of Server's voting shares.Server reported net income of $50,000,and Patron 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:

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

Plesco Corporation acquired 80 percent of Slesco Corporation's voting common stock on January 1,20X7.On January 1,20X8,Plesco received $350,000 from Slesco for equipment Plesco 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 20X9 consolidated income statement,depreciation expense will be: