B. Woods Chapter 06 electronic

B. Woods Chapter 06 electronic - Chapter 6 INTERCOMPANY...

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168 Chapter 6 INTERCOMPANY PROFIT TRANSACTIONS - PLANT ASSETS Electronic Supplement Solution W6-1 1 Gain on sale of building will not appear on consolidated income statement. 2 Consolidated depreciation expense Combined depreciation expense $160,000 Less: Piecemeal recognition of excess depreciation ($60,000 - $40,000)/10 years (2,000 ) Consolidated depreciation expense $158,000 3 Consolidated net income Park's reported income $295,000 Less: Gain on building (20,000) Add: Piecemeal recognition of excess depreciation 2,000 Consolidated net income $277,000 Alternatively, Park's separate income $220,000 Add: Income from Skyline ($100,000 x 75%) - $18,000 57,000 Consolidated net income $277,000 4 Correcting entry Retained earnings $18,000 Investment in Skyline $18,000 To correct error of omission ($20,000 gain - $2,000 piecemeal recognition).
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169 Intercompany Profit Transactions - Plant Assets Solution W6-2 Pony Corporation and Subsidiary Consolidated Balance Sheet at December 31, 2008 Current Assets Cash $ 4,400,000 Receivables-net 6,760,000 Inventories a 5,790,000 $16,950,000 Plant Assets Land b $ 5,500,000 Buildings-net 12,000,000 Equipment-net 20,000,000 Patents c 350,000 37,850,000 Total assets $54,800,000 Liabilities Accounts payable $ 6,000,000 Other liabilities 10,000,000 $16,000,000 Stockholders' Equity Common stock $30,000,000 Retained earnings d 7,620,000 Minority interest e 1,180,000 38,800,000 Total liabilities and stockholders' equity $54,800,000 a Combined inventories $5,840,000 - $50,000 unrealized profit in ending inventory = $5,790,000 b Combined land $5,700,000 - $200,000 unrealized profit = $5,500,000 c Patents December 31, 2005 $500,000 Less: Amortization for 3 years ($50,000 x 3) (150,000 ) Patents December 31, 2008 $350,000 d Retained earnings-Pony December 31, 2008 $8,000,000 Less: Patents amortization for 3 years (150,000) Less: Unrealized profit in ending inventory (50,000) Less: Unrealized gain on land ($200,000 x 90%) (180,000 ) Consolidated retained earnings December 31, 2008 $7,620,000 e Equity in Sox ($12,000,000 x 10%) $1,200,000 Less: Minority share of unrealized gain on land ($200,000 x 10%) (20,000 )
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170 Chapter 6 Minority interest December 31, 2008 $1,180,000
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171 Intercompany Profit Transactions - Plant Assets Solution W6-3 Prime Corporation and Subsidiary Comparative Consolidated Income Statements for the years ended December 31, 2006 and 2005 2006 2005 Sales $800,000 $660,000 Cost of sales (442,000 ) (368,000 ) Gross profit 358,000 292,000 Operating expenses (178,000 ) (138,000 ) Total consolidated income 180,000 154,000 Minority interest expense (10,000 ) (10,000 ) Consolidated net income $170,000 $144,000 Supporting computations: Consolidated sales:
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B. Woods Chapter 06 electronic - Chapter 6 INTERCOMPANY...

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