Chapter 07 – Intercompany Transfers of Noncurrent Assets and Services
E7-16 Intercompany Sale at a Loss
a. Consolidated net income for 20X8 will be greater than Parent Company’s income from
operations plus Sunway’s reported net income. The consolidation entries at December 31,
expense.
E7-17 Consolidation Entries Following Intercompany Sale at a Loss
a.
Consolidation entry, December 31, 20X7:
Buildings and Equipment
156,000
Loss on Sale of Building
36,000
Accumulated Depreciation
120,000
Eliminate unrealized loss on building.
The basic entry (not shown) would be adjusted by 36,000 of deferred
loss on sale of building to complete the elimination process.
b.
Consolidated net income and income to controlling
interest for 20X7:
Operating income reported by Brown
$125,000
Net income reported by Transom
$ 15,000
Add: Loss on sale of building
36,000
Realized net income of Transom
51,000
Consolidated net income
$176,000
Income to noncontrolling interest ($51,000 x 0.30)
(15,300)
Income to controlling interest
$160,700
c.
Eliminate the Loss on Building and Correct Asset’s Basis:
Building
156,000
Investment in Transom Co.
25,200
NCI in NA of Transom Co.
10,800
Accumulated Depreciation
120,000
Depreciation Expense
4,000
Accumulated Depreciation
4,000
The basic entry (not shown) would be adjusted by 4,000 to reverse the
loss deferral and complete the elimination process.
Chapter 07 – Intercompany Transfers of Noncurrent Assets and Services
Eliminate Gain on Purchase of Land
Investment in TV Sales Co.
11,000
Land
11,000
Eliminate the Gain on Equipment and Correct Asset’s Basis:
Investment in TV Sales Co.
26,000
NCI in NA of TV Sales Co.
14,000
Equipment, net
40,000
Accumulated Depreciation
8,000
Depreciation Expense
8,000
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P7-24 Computation of Consolidated Net Income
a.
Separate operating income of Petime Corporation
$34,000
Reported net income of United Grain Company
$19,000
Unrealized profit of sale of land
(7,000)
Realized income for 20X4
$12,000
Amortization of differential ($10,000 / 10 years)
( 1,000)
$11,000
Proportion of ownership held by Petime
x 0.90
Income attributable to controlling interest
9,900
Income to controlling interest
$43,900
b.
Separate operating income of Petime Corporation
$34,000
Reported net income by United Grain Company
$19,000
Amortization of differential ($10,000 / 10 years)
( 1,000)
$18,000
Proportion of stock held by Petime
x 0.90
Income attributable to controlling interest
16,200
Unrealized profit on sale of land
(7,000)
Income to controlling interest
$43,200
Reported income will decrease by $700. In the upstream case the unrealized profit
($7,000) is apportioned to both majority ($6,300) and noncontrolling ($700)
shareholders. In the downstream case, it is apportioned entirely to the majority
shareholders ($7,000).
P7-25 Subsidiary Net Income
a.
Toll Corporation’s reported net income for 20X4 was $94,400:
Income assigned to noncontrolling shareholders
$17,500
Add: Unrealized profit on building ($20,000 x 0.25)
5,000
Amortization of differential ($4,400 x 0.25)
1,100
Income assigned to noncontrolling interest before
adjustment
$23,600
Proportion of stock held by noncontrolling interest
÷ 0.25
Reported income of Toll
$94,400
Computation of annual amortization:
Fair value of consideration given by Bold
$348,000
Fair value of noncontrolling interest
116,000
Total fair value
$464,000
Book value of Toll’s assets:
Common stock
$150,000
Retained earnings
270,000
Total book value
(420,000)
Differential paid by Bold
$ 44,000
Number of years in amortization period
÷ 10
Annual amortization
$4,400