ch06_hw - Chapter 6 INTERCOMPANY PROFIT TRANSACTIONS -...

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Chapter 6 INTERCOMPANY PROFIT TRANSACTIONS — PLANT ASSETS SOLUTIONS TO EXERCISES Solution E6-1 1 c 2 a 3 c 4 d Solution E6-3 1a Consolidated net income 2006 2007 Pruitt’s separate income $ 300,000 $ 400,000 Add: Equity in Silverman’s income 2006 $80,000 × 90% 72,000 2007 $60,000 × 90% 54,000 Gain on sale of land (10,000 ) --- Consolidated net income $ 362,000 $ 454,000 1b Noncontrolling interest expense Silverman’s net income × 10% $ 8,000 $ 6,000 2a Consolidated net income Pruitt’s separate income $ 300,000 $ 400,000 Add: Equity in Silverman’s income 72,000 54,000 Less: Gain on land × 90% (9,000 ) --- Consolidated net income $ 363,000 $ 454,000 2b Noncontrolling interest expense Silverman’s net income × 10% $ 8,000 $ 6,000 Less: Gain on land × 10% (1,000 ) --- Noncontrolling interest expense $ 7,000 $ 6,000 131
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132 Intercompany Profit Transactions — Plant Assets Solution E6-5 [AICPA adapted] 1 d The equipment must be shown at its $1,400,000 book value to the consolidated entity and d is the only choice that provides a $1,400,000 book value. Ordinarily, the equipment would be shown at $1,500,000, its book value at the time of transfer, less the $100,000 depreciation after transfer. 2 c Reciprocal receivables and payables accounts and purchases and sales accounts must always be eliminated. But dividend income (parent) and dividends paid (subsidiary) accounts are reciprocals only when the cost method is used. 3 a Amount to be eliminated from consolidated net income in 2006: Intercompany gain on downstream sale of machinery $10,000 Less: Realized through depreciation of intercompany gain on machinery ($10,000/5 years) (2,000 ) Decrease in consolidated net income from intercompany sale $ 8,000 Amount to be added to consolidated net income in 2007 for realization through depreciation of intercompany gain on machinery $ 2,000 4 b One-third of the unrealized intercompany profit is recognized through depreciation for 2006. 132
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Chapter 6 133 Solution E6-6 1 a Selling price in 2014 $ 55,000 Cost to consolidated entity 15,000 Gain on sale of land $ 40,000 2 b Gain on equipment $ 30,000 Less: Depreciation on gain (10,000 ) Net effect on investment account $ 20,000 The investment account will be $20,000 less than the underlying equity interest. 3 b Combined equipment net $ 800,000 Less: Unrealized gain (20,000) Add: Piecemeal recognition of gain 5,000 Consolidated equipment net $ 785,000 4 b The working paper entry to eliminate the unrealized profit is: Gain on sale of equipment 1,500 Equipment 1,500 5 c Investment income will be decreased by $12,000 gain less $3,000 piecemeal recognition of the gain. 6 c Sartin’s net income $1,000,000 Less: Unrealized gain (50,000) Add: Piecemeal recognition 5,000 Realized income 955,000 Noncontrolling interest percentage 40 % N oncontrolling interest expense $ 382,000 133
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134 Intercompany Profit Transactions — Plant Assets Solution E6-9 1 Income from Simple, net income and consolidated net income:
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This homework help was uploaded on 04/05/2008 for the course ACCT 401 taught by Professor Schoderbek during the Spring '08 term at Rutgers.

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ch06_hw - Chapter 6 INTERCOMPANY PROFIT TRANSACTIONS -...

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