Concept explainers
Concept Introduction:
The intercompany transactions occur when the unit of legal entity is having transactions with another unit of the similar entity. This transaction can be divided into two categories such as direct and indirect intercompany transfer. The direct transfer occurs when there is transfer between the different units of the same entity and indirect transfer occurs when the unit of entity acquires debt or assets issued to unrelated entity through another unit of the same entity. This type of transfer will help the entity in improving the flow of finance and asset in efficient manner.
Requirement 1
The consolidated net income of the entity.
Concept Introduction:
The intercompany transactions occur when the unit of legal entity is having transactions with another unit of the similar entity. This transaction can be divided into two categories such as direct and indirect intercompany transfer. The direct transfer occurs when there is transfer between the different units of the same entity and indirect transfer occurs when the unit of entity acquires debt or assets issued to unrelated entity through another unit of the same entity. This type of transfer will help the entity in improving the flow of finance and asset in efficient manner.
Requirement 2
The change in the consolidated net income when sale is downstream sale in place of upstream sale.
Concept Introduction:
The intercompany transactions occur when the unit of legal entity is having transactions with another unit of the similar entity. This transaction can be divided into two categories such as direct and indirect intercompany transfer. The direct transfer occurs when there is transfer between the different units of the same entity and indirect transfer occurs when the unit of entity acquires debt or assets issued to unrelated entity through another unit of the same entity. This type of transfer will help the entity in improving the flow of finance and asset in efficient manner.
Requirement 3
The elimination entries to eliminate the effect of the intercompany sale.
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Chapter 7 Solutions
ADVANCED FINANCIAL ACCOUNTING IA
- On January 1, 2014, Klinefelter Company purchased a building for 520,000. The building had an estimated life of 20 years and an estimated residual value of 20,000. The company has been depreciating the building using straight-line depreciation. At the beginning of 2020, the following independent situations occur: a. The company estimates that the building has a remaining life of 10 years (for a total of 16 years). b. The company changes to the sum-of-the-years-digits method. c. The company discovers that it had ignored the estimated residual value in the computation of the annual depreciation each year. Required: For each of the independent situations, prepare all journal entries related to the building for 2020. Ignore income taxes.arrow_forwardOn June 28 Lexicon Corporation acquired 100% of the common stock of Gulf & Eastern. The purchase price allocation included the following items: $4 million, patent; $3 million, developed technology; $2 million, inprocess research and development; $5 million, goodwill. Lexicon’s policy is to amortize intangible assets using the straight-line method, no residual value, and a five-year useful life. What is the total amount of expenses (ignoring taxes) that would appear in Lexicon’s income statement for the year ended December 31 related to these items?arrow_forwardOn January 1, 2017, Server Company purchased a machine with an expected economic life of five years. On January 1, 2019, Server sold the machine to Patron Corporation and recorded the following entry: Cash 45,000 Accumulated Depreciation 28,000, Machine 70,000, Gain on Sale of Equipment 3,000. Patron Corporation holds 75 percent of server's voring shares.Server reported a net income of $50,000, and Patron reported income from its own operations of 100,000 for 2019/. There is no change in the economic life of the equipement as a result of the intercorporate tranfer. Based on the preceding information, in the preparation of the 2019 consolidated balance sheet, the machine will be : Debited for 25,000, Credited for 45,000, debited for 1,000, debited for 15,000arrow_forward
- On March 31, 2021, JISOO Company purchased 32,000 shares of the 40,000 outstanding shares of ROSECompany at a price of P1,200,000 with an excess of P30,000 over the book value of ROSE Company’snet assets. P13,000 of the excess is attributed to an undervalued equipment with a remaining usefullife of 10 years from the date of acquisition and the rest of the amount is attributed to goodwill. Forthe year 2021, JISOO Company reported a net income of P750,000 and paid dividends of P180,000.While ROSE Company reported a net income of P240,000 which was evenly earned during the yearand paid dividends to JISOO Company amounting to P39,000. Goodwill was not impaired in 2021.The retained earnings of JISOO Company at the end of 2021 per books is P1,025,000. JISOO Companyuses the cost method to account for its investment in ROSE Company. Non-controlling interest ismeasured at fair market value. Requirement:Compute for the non-controlling interest in net assets on December 31, 2021.arrow_forwardCake Company acquired the following plant assets during the current year.· Equipment - Acquired at an invoice price of P600,000, subject to a 5% cash discount which was not taken.· Land - Acquired by issuing 10,000 shares of P50 par value when the market price of the share was P120. The shares issued are treasury shares which had been acquired at a cost of P90 per share. The fair value of the land is P1,100,000.· Machinery - Acquired at a cost of P275,000. Installation cost was P7,000, trial run and other testing cost P18,000, and construction of base, P10,000.What is the total increase in property, plant and equipment as a result of plant asset acquisitions? P1,770,000 P1,970,000 P1,980,000 P2,080,000arrow_forwardOn July 1, 2022, Alicia Company purchased 25% of Clarkson Company's ordinary shares. No goodwill resulted from the acquisition; however, the purchase difference of P1,000,000 was allocated to an undervalued equipment with a remaining useful life of five years. Alicia appropriately carries this investment using equity method and the balance of the investment account was P12,000,000 at December 31, 2022. Clarkson reported profit of P20,000,000 for the year ended December 31, 2022 and paid Alicia dividends of P1,000,000 on December 31, 2022. How much did Alicia pay for its 25% interest in Clarkson Company? A P10,400,000 B) P9,900,000 C) P10,600,000 D P9,650,000arrow_forward
- At the beginning of the year SassyCat acquired 30% of the outstanding common stock of LazyMouse for $1,200,000. The book value of the net assets of LazyMouse at the time of the acquisition was $4,500,000. Any excess cost over the underlying book value was assigned to a patent that was undervalued on LazyMouse's balance sheet. The patent has a remaining useful life of 5 years. For the year, LazyMouse reported net income of $300,000 and paid cash dividends of $90,000. Question 1 At the end of the year the balance of the LazyMouse investment on the books of SassyCat should be ? (enter whole dollars without dollar signs)arrow_forwardDuring the current year, Brewer Company acquired all of the outstanding common stock of Miller Inc. paying $11,900,000 cash. The book values and fair values of Miller's assets and liabilities acquired are listed below: Book Value Fair Value Accounts receivable $ 1,750,000 $ 1,575,000 Inventories 2,600,000 3,900,000 Property, plant, and equipment 8,900,000 11,525,000 Accounts payable 2,900,000 2,900,000 Bonds payable 4,400,000 4,025,000 Prepare the journal entry to record the acquisition by Brewer Company.arrow_forwardPea Company purchased 70 percent of Split Company’s stock approximately 20 years ago. On December 31, 20X8, Pea purchased a building from Split for $300,000. Split had purchased the building on January 1, 20X1, at a cost of $400,000 and used straight-line depreciation on an expected life of 20 years. The asset’s total estimated economic life is unchanged as a result of the intercompany sale. Record the entry to eliminate the gain on the equipment and to correct the asset's basis. Record the entry to adjust Accumulated Depreciation.arrow_forward
- Prime Corp acquired 90% of the outstanding ordinary share of Bee Company. On March 31, 2030, Prime sold equipment to Bee Company costing P150,000, with accumulated depreciation of P30,000 for P100,000. The remaining useful life of the equipment is four years. On September 30, 2030, Bee sold machinery with carrying amount of P200,000 for P240,000. The remaining useful life of the machine is five years. On December 31, 2030, Prime and Bee reported net income from their own operation amounting to P1,000,000 and P600,000, respectively. Bee also paid dividend of P200,000. What is the amount of Investment income under equity method for 2030? Group of answer choices 524,633 516,625 522,050 520,425arrow_forwardPrime Corp acquired 90% of the outstanding ordinary share of Bee Company. On March 31, 2030, Prime sold equipment to Bee Company costing P150,000, with accumulated depreciation of P30,000 for P100,000. The remaining useful life of the equipment is four years. On September 30, 2030, Bee sold machinery with carrying amount of P200,000 for P240,000. The remaining useful life of the machine is five years. On December 31, 2030, Prime and Bee reported net income from their own operation amounting to P1,000,000 and P600,000, respectively. Bee also paid dividend of P200,000. What is the amount of non-controlling interest in net income for 2030? What is the amount of consolidated net income attributable to parent for 2030? What is the amount of Investment income under equity method for 2030?arrow_forwardPeople Co. acquired 80% of Steeple Co.'s common stock for $10,000,000 in cash on Jan. 2, 20x1. At that date, Steeple's 56,000,000 of net assets were fairly stated, except for an unrecorded intangible asset, favorable leases, with a $1,000,000 value (useful life of 10 years, straight-line amortization). The estimated fair value of the noncontrolling interests at the acquisition date was $2,000,000. People Co. accounts for its investment in Steeple Co. using the equity method. There are no intra-entity transactions and both firms are in the U.S.A It is now December 31, 20x3. Steeple reported net income of $250,000 for the current year, and declared and paid $40,000 in dividends. There were no impairments of Steeple's assets in 20x1, 20x2 or but goodwill is impaired by $100,000 in 20x3. Show consolidating entry R (relates to recognizing revalued assets and liabilities) that would be needed to present consolidated financial statements for 20x3.arrow_forward
- Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage LearningPrinciples of Accounting Volume 1AccountingISBN:9781947172685Author:OpenStaxPublisher:OpenStax College
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