Exam 7: Intercompany Transfers of Services and Noncurrent Assets

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 should be the amount of income assigned to the controlling shareholders in the consolidated income statement for 20X5?

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,while preparing the 20X8 consolidated income statement,depreciation expense will be:

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. -Which worksheet consolidation entry will be made on December 31,20X3,if Syrup Corporation had initially purchased the land for $60,000 and then sold it to Pancake on August 7,20X2,for $35,000?

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 consolidation entries related to the equipment transfer for the 20X8 consolidated financial statements,net effect on accumulated depreciation will be:

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:

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?

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,while preparing the 20X4 consolidated income statement,depreciation expense will be

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

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 consolidating 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.

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 to be reported as consolidated net income for 20X8 will be:

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. -Which worksheet consolidating entry will be made on December 31,20X9,if Spice Corporation had initially purchased the land for $50,000 and then sold it to Pumpkin on July 15,20X8,for $70,000?

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,in the preparation of the 20X9 consolidated income statement,depreciation expense 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 consolidation entries related to the equipment transfer for the 20X9 consolidated financial statements,net effect on accumulated depreciation will be:

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 financial statements,equipment will be:

Pepper Company acquired 75 percent of Salt 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 Salt Company.Salt Company reported shares outstanding of $350,000 and retained earnings of $100,000.During 20X8,Salt Company reported net income of $60,000 and paid dividends of $3,000.In 20X9,Salt Company reported net income of $90,000 and paid dividends of $15,000.The following transactions occurred between Pepper Company and Salt Company in 20X8 and 20X9: Salt Co.sold equipment to Pepper Co.for a $42,000 gain on December 31,20X8.Salt 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,Pepper Co.estimated that the equipment still had a seven-year remaining useful life. Pepper sold land costing $90,000 to Oregano Company on June 28,20X9,for $110,000. Required: Give all consolidating entries needed to prepare a consolidation worksheet for 20X9 assuming that Pepper Co.uses the modified equity method to account for its investment in Oregano Company.

Phobos Company holds 80 percent of Seimos Company's voting shares.During the preparation of consolidated financial statements for 20X9,the following consolidating entry was made: Which of the following statements is correct?