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 change in the amount of net income when intercompany services are eliminated in preparing the consolidated statement.
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 impact of eliminating the intercompany service on the consolidated net income when entity is owing 100% of the other 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 3
We have to determine the cost of providing health care services to its own employees..
Want to see the full answer?
Check out a sample textbook solutionChapter 7 Solutions
Advanced Financial Accounting
- Server Corporation is a majority-owned subsidiary of Proxy Corporation. Proxy acquired 75 percent ownership on January 1, 20X3, for $133,500. At that date, Server reported common stock outstanding of $60,000 and retained earnings of $90,000, and the fair value of the noncontrolling interest was $44,500. The differential is assigned to equipment, which had a fair value $28,000 more than book value and a remaining economic life of seven years at the date of the business combination. Server reported net income of $30,000 and paid dividends of $12,000 in 20X3.Required:a. Prepare the journal entries recorded by Proxy during 20X3 on its books if it accounts for its investment in Server using the equity method. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) b. Prepare the consolidation entries needed at December 31, 20X3, to prepare consolidated financial statements. (If no entry is required for a transaction/event, select "No…arrow_forwardPlumas, Inc., owns 75 percent of Santa Cruz Corporation. Both companies have been profitable for many years. During the current year, the parent sold for $134,500 merchandise costing $102,000 to the subsidiary, which still held 20 percent of this merchandise at the end of the year. Assume that the tax rate is 30 percent and that a consolidated tax return was filed. What deferred income tax asset amount is created?arrow_forwardLorn Corporation purchased inventory from Dresser Corporation for P120,000 on September 20, 20x2, and resold 80% of the purchased inventory to unaffiliated companies prior to December 31, 20x2, for P140,000. Dresser produced the inventory sold to Lorn for P75,000. Lorn owns 70% of Dresser’s voting common stock. The companies had no other transactions during 20x2. What amount of consolidated net income will be assigned to the controlling interest for 20x2? A. P20,000 D. P45, 000B. P30, 800 E. 69, 200C. P44, 000 F. 80, 000arrow_forward
- Simple Company, a 70%-owned subsidiary of Punter Corporation, reported net income of P240,000 and paid dividends totalling P90,000 during Year 3. Year 3 amortization differences between current fair values and carrying amounts of Simple’s identifiable net assets at the date of business combination was P45,000. The non-controlling interest in net income of Simple for Year 3 was P58,500 P13,500 P27,000 P72,000arrow_forwardPitino acquired 90 percent of Brey's outstanding shares on January 1, 2019, in exchange for $351,000 in cash. The subsidiary's stockholders' equity accounts totaled $335,000, and the noncontrolling interest had a fair value of $39,000 on that day. However, a building (with a ten-year remaining life) in Brey's accounting records was undervalued by $15,000. Pitino assigned the rest of the excess fair value over book value to Brey's patented technology (four-year remaining life). Brey reported net income from its own operations of $65,000 in 2019 and $81,000 in 2020. Brey declared dividends of $19,500 in 2019 and $23,500 in 2020. Brey sells inventory to Pitino as follows: Year Cost to Brey Transfer Price to Pitino Inventory Remaining at Year-End (at transfer price) 2019 $ 70,000 $ 120,000 $ 26,000 2020 77,000 140,000 38,000 2021 99,000 165,000 40,000 At December 31, 2021, Pitino owes Brey $17,000 for inventory acquired during the…arrow_forwardOn July 1, 2022, Livermore, Inc., acquired 60 percent of Rough Company for $420,000. The remaining 40 percent of Rough's outstanding shares continue to trade at a collective value of $280,000. On that date patent owned by Rough with 10-year remaining life is undervalued by $100,000. Rough has a book value of net assets at $480,000 on January 1, 2022. The affiliates report the following 2022 amount from their own separate operations: Livermore Rough Revenues $700,000 $220,000 Expenses 450,000 70,000 Dividends (declared quarterly) 124,000 30,000 Assume Rough's revenues and expenses occurred uniformly throughout the year. On 2022 consolidated income statement, what is the amount of consolidated net income allocated to the controlling interest? a. $302,000 b. $286,000 c. $292,000 d. $264,000arrow_forward
- Corporation P owns 93 percent of the outstanding stock of Corporation T. This year, the corporation’s records provide the following information: Corporation P Corporation T Ordinary operating income (loss) $ 500,000 $ (200,000) Capital gain (loss) (8,300) 6,000 Section 1231 gain (loss) (1,000) 5,000 Required: Compute each corporation’s taxable income if each files a separate tax return. Compute consolidated taxable income if Corporation P and Corporation T file a consolidated tax return. My solutions: 1. Corporation P: $499,000 and Corporation T: ($189,000), 2. $310,000 I missed this problem on my homework. Could you please explain how to get the correct answer?arrow_forwardAlfonso Inc. acquired 100 percent of the voting shares of BelAire Company on January 1, 2020. In exchange, Alfonso paid $455,000 in cash and issued 100,000 shares of its own $1 par value common stock. On this date, Alfonso’s stock had a fair value of $15 per share. The combination is a statutory merger with BelAire subsequently dissolved as a legal corporation. BelAire’s assets and liabilities are assigned to a new reporting unit. The following shows fair values for the BelAire reporting unit for January 1, 2020 along with respective carrying amounts on December 31, 2021. BelAire Reporting Unit Fair Values1/1/20 Carrying Amounts12/31/21 Cash $ 92,000 $ 49,000 Receivables 208,250 244,000 Inventory 234,000 259,000 Patents 753,500 864,000 Customer relationships 597,250 576,000 Equipment (net) 397,500 297,000 Goodwill ? 410,000 Accounts payable (97,500 ) (187,000 ) Long-term liabilities (640,000 ) (542,000…arrow_forwardPitino acquired 90 percent of Brey's outstanding shares on January 1, 2019, in exchange for $342,000 in cash. The subsidiary's stockholders' equity accounts totaled $326,000, and the noncontrolling interest had a fair value of $38,000 on that day. However, a building (with a nine-year remaining life) in Brey's accounting records was undervalued by $18,000. Pitino assigned the rest of the excess fair value over book value to Brey's patented technology (six-year remaining life). Brey reported net income from its own operations of $64,000 in 2019 and $80,000 in 2020. Brey declared dividends of $19,000 in 2019 and $23,000 in 2020. Brey sells inventory to Pitino as follows: Year Cost to Brey Transfer Price to Pitino Inventory Remaining at Year-End (at transfer price) 2019 $ 69,000 $ 115,000 $ 25,000 2020 81,000 135,000 37,500 2021 92,800 160,000 50,000 At December 31, 2021, Pitino owes Brey $16,000 for inventory acquired during the…arrow_forward
- Pitino acquired 90 percent of Brey's outstanding shares on January 1, 2019, in exchange for $342,000 in cash. The subsidiary's stockholders' equity accounts totaled $326,000, and the noncontrolling interest had a fair value of $38,000 on that day. However, a building (with a nine-year remaining life) in Brey's accounting records was undervalued by $18,000. Pitino assigned the rest of the excess fair value over book value to Brey's patented technology (six-year remaining life). Brey reported net income from its own operations of $64,000 in 2019 and $80,000 in 2020. Brey declared dividends of $19,000 in 2019 and $23,000 in 2020. Brey sells inventory to Pitino as follows: Year Cost to Brey Transfer Price to Pitino Inventory Remaining at Year-End (at transfer price) 2019 $ 69,000 $ 115,000 $ 25,000 2020 81,000 135,000 37,500 2021 92,800 160,000 50,000 At December 31, 2021, Pitino owes Brey $16,000 for inventory acquired during the…arrow_forwardLorn Corporation purchased inventory from Dresser Corporation for P 120,000 on September 20, 20x2, and resold 80% of the purchased inventory to unaffiliated companies prior to December 31, 20x2, for P140,000. Dresser produced the inventory sold to Lorn for P75,000. Lorn owns 70% of Dresser’s voting common stock. The companies had no other transactions during 20x2 What amount of sales will be reported in the 20x2 consolidated income statement? A. P98, 000 B. P120, 000 C. P140, 000 D. P260, 000arrow_forward