Chapter 8 Problems

Chapter 8 Problems - Chapter 8 Problems Problem 1 Before...

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Chapter 8 Problems Problem 1 Before tax 40% tax After tax Asset profit – Y Company selling January 1, Year 2 – sale 45,000 18,000 27,000 Depreciation Year 2 9,000 3,600 5,400 Balance December 31, Year 2 36,000 14,400 21,600 (a) Depreciation Year 3 9,000 3,600 5,400 (b) Balance December 31, Year 3 27,000 10,800 16,200 Asset profit – X Company selling April 30, Year 3 – sale 60,000 24,000 36,000 Depreciation Year 3 (12,000 × 8/12) 8,000 3,200 4,800 Balance December 31, Year 3 52,000 20,800 31,200 (c) Investment in Y Company Balance January 1, Year 2 $ 86,900 ) Year 2 transactions: Increase in Y Company retained earnings ([125,000 – 70,000] × 80%) 44,000 ) X’s share of purchase discrepancy amortization * (1,150) Holdback of Year 2 asset profit (net) ((a) 21,600 × 80%) (17,280) Year 3 transactions: Increase in Y Company retained earnings ([104,000 – 70,000]) × 80%) 27,200 ) Purchase discrepancy amortization (1,150) Realization of Year 2 asset profit ((b) 5,400 × 80%) 4,320 ) Holdback of Year 3 asset profit (net) (c) (31,200 ) Balance December 31, Year 3 $111,640 ) * (86,900 / 80% – 100,000) x 80% / 6 =1,150
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Problem 3 Intercompany profits subsidiary selling Before tax 40% tax After tax Equipment Sale, Sept. 30, Year 5 8,000 3,200 4,800 Depreciation Year 5 (8,000 / 5 × 3/12) 400 160 240 (a) Balance, Dec. 31, Year 5 7,600 3,040 4,560 (b) Depreciation Year 6 (8,000 / 5) 1,600 640 960 (c) Balance, Dec. 31, Year 6 6,000 2,400 3,600 Building Sale, Jan. 1, Year 6 42,000 16,800 25,200 Depreciation Year 6 (42,000 / 7) 6,000 2,400 3,600 (d) Balance, Dec. 31, Year 6 36,000 14,400 21,600 (e) Intercompany Rent Year 5 (12,000 × 3/12) 3,000 (f) Year 6 12,000 (g)
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Calculation of consolidated net income Year 5 Year 6 Incorrectly reported income 120,000 142,000 Less: Net unrealized profits Equipment (b) 4,560 Building (e) 21,600 Add: equipment profit realized (c) 960 4,560 (h) 20,640 (i) Parent's ownership % 75% 3,420 75% 15,480 Consolidated net income 116,580 126,520 Parent Company Corrected Consolidated Income Statements Years 5 and 6 Year 5 Year 6 Miscellaneous revenues $750,000 $825,000 Miscellaneous expense
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This note was uploaded on 03/10/2010 for the course ACC ACC703 taught by Professor Taylor during the Spring '10 term at Ryerson.

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Chapter 8 Problems - Chapter 8 Problems Problem 1 Before...

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