Answered: alculate for Parent for the year ended…

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter13: Investments And Long-term Receivables

Section: Chapter Questions

Problem 8MC

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Question

On January 1, Year 1, Parent Co. purchased 80% of the outstanding common shares of Sub Co. Parent follows IFRS.

At January 1, Year 1, fair values of Sub were equal to carrying amounts for all its net assets except for a trademark which was bought by Sub for $40,000 and had accumulated amortization of $12,000 at Jan 1, Yr 1. The fair value of the trademark was $32,000 at Jan 1, Year 1. At that time, the remaining useful life of the trademark was five years and it is still on Sub’s books at the end of Year 3.

Parent uses the cost method to record its investment in Sub on its books. If the companies sell product to each other, it is at a gross profit rate of 20%. Both companies pay income tax at 30% of their taxable income.

On December 31, Year 2, inventory of Parent included $20,000 of purchases made from Sub.

On December 20, Year 3, Sub declared and paid dividends to Parent of $18,000. During Year 3, Parent made sales of $100,000 to Sub which have all been paid. At Dec 31, Year 3, Sub’s inventory still contained $42,000 of this amount.

Net income/(loss) for the year ended December 31, Year 3, was:
Year 3	Parent	Sub
Net income/(loss)	50,000	(20,000)

show and label all the calculations and answers:

Calculate for Parent for the year ended December 31, year 3:

a) total consolidated income

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