Exam 6: Intercompany Profit Transactions - Plant Assets

Use the following information to answer the question(s)below. On January 1,2010,Shrimp Corporation purchased a delivery truck with an expected useful life of five years,and a salvage value of $8,000.On January 1,2012,Shrimp sold the truck to Pacet Corporation.Pacet assumed the same salvage value and remaining life of three years used by Shrimp.Straight-line depreciation is used by both companies.On January 1,2012,Shrimp recorded the following journal entry: Pacet holds 60% of Shrimp.Shrimp reported net income of $55,000 in 2012 and Pacet's separate net income (excludes interest in Shrimp)for 2012 was $98,000. -In preparing the consolidated financial statements for 2012,the elimination entry for depreciation expense was a

Passo Corporation acquired a 70% interest in Saun Corporation in 2007 at a time when Saun's book values and fair values were equal.In 2010,Saun sold land to Passo for $82,000 that cost $72,000.The land remained in Passo's possession until 2012 when Passo sold it outside the combined entity for $102,000. After the books were closed in 2012,it was discovered that Passo had not considered the unrealized gain from its intercompany purchase of land in preparing the consolidated financial statements.The only entry on Passo's books was a debit to Land and a credit to Cash in 2010 for $82,000,and in 2012,a debit to Cash for $102,000 and credits to Land for $82,000 and Gain on sale of land for $20,000. Before the discovery of the error,the consolidated financial statements disclosed the following amounts: Required: 1.Prepare elimination/adjusting entries relating to the land on the consolidated working papers for December 31,2010,December 31,2011 and December 31,2012. 2.Determine the correct amounts for Land in 2010,2011,and 2012. 3.Calculate the amount at which the gain on the sale of land should have been reported in 2012.

Prey Corporation created a wholly owned subsidiary,Sage Corporation,on January 1,2010,at which time Prey sold land with a book value of $90,000 to Sage at its fair market value of $140,000.Also,on January 1,2010,Prey sold to Sage equipment with a book value of $130,000 and a selling price of $165,000.The equipment had a remaining useful life of 4 years and is being depreciated under the straight-line method.The equipment has no salvage value.On January 1,2012,Sage resold the land to an outside entity for $150,000.Sage continues to use the equipment purchased from Prey.Income statements for Prey and Sage for the year ended December 31,2012 are summarized below: Required: At what amounts did the following items appear on the consolidated income statement for Prey and Subsidiary for the year ended December 31,2012? 1.Gain on Sale of Land 2.Depreciation Expense 3.Consolidated net income 4.Controlling interest share of consolidated net income

Paula's Pizzas purchased 80% of their supplier,Sarah's Sauces.Sarah's book values equaled fair value at the time of the acquisition.Paula sold Sarah some packaging equipment on January 2,2011 for $100,000.The equipment had a carrying value of $90,000,and original cost of $120,000,and had a remaining life of 10 years.Both Paula and Sarah depreciate their assets on the straight-line method.The equipment has no salvage value. Required: Prepare the following entries: 1.Journal entries Paula and Sarah will prepare on their separate books in 2011. 2.Eliminating/adjusting entries on the consolidation worksheet at the end of 2011. 3.Eliminating/adjusting entries on the consolidation worksheet at the end of 2012.

The 2011 unrealized gain from the intercompany sale

On January 2,2011,Paogo Company sold a truck with book value of $15,000 to Sanall Corporation,its wholly-owned subsidiary,for $20,000.The truck had a remaining useful life of five years with zero salvage value.Both firms use the straight-line depreciation method.If Paogo failed to make year-end adjustments/eliminations on the consolidated working papers in 2011,consolidated depreciation expense for 2011 would be

Separate income statements of Pingair Corporation and its 90%-owned subsidiary,Staunch Inc. ,for 2011 were as follows: Additional information: 1.Pingair acquired its 90% interest in Staunch Inc.when the book values were equal to the fair values. 2.The gain on equipment relates to equipment with a book value of $120,000 and a 4-year remaining useful life that Pingair sold to Staunch for $200,000 on January 2,2011.The straight-line depreciation method is used.The equipment has no salvage value. 3.Pingair sold inventory to Staunch in 2010 and 2011 as shown in the table below.(The 2010 ending inventory is sold in 2011. ) 4.Staunch did not declare or pay dividends in 2010 and 2011. Required: 1.Prepare adjusting/eliminating entries for the consolidation worksheet at December 31,2011. 2.Prepare a consolidated income statement for Pingair Corporation and Subsidiary for the year ended December 31,2011.

Peregrine Corporation acquired an 80% interest in Serine Corporation in 2009 at a time when Serine's book values and fair values were equal to one another.On January 1,2012,Serine sold a truck with a $55,000 book value to Peregrine for $100,000.Peregrine is depreciating the truck over 10 years using the straight-line method.The truck has no salvage value.Separate incomes for Peregrine and Serine for 2012 were as follows: Peregrine's investment income from Serine for 2012 was

Plock Corporation,the 75% owner of Seraphim Company,reported net income of $400,000 in 2011,prior to recording any income from Seraphim.Seraphim reported net income for that same year of $80,000 on their stand-alone statements.During 2011,an intercompany sale of a vehicle resulted in a gain of $4,000,and the vehicle was assumed to have a four-year remaining useful life.The vehicle has no salvage value.Straight-line depreciation is used. Required: 1.Assuming that the vehicle transfer was downstream,calculate Plock's consolidated net income for 2011,and controlling share of consolidated net income for 2011. 2.Assuming that the vehicle transfer was upstream,calculate Plock's consolidated net income for 2011,and controlling share of consolidated net income for 2011.

On January 2,2012,Pal Corporation sold warehouse equipment to SimCo,a wholly-owned subsidiary.The equipment had an original cost of $130,000 and a net book value of $100,000 when it was sold to SimCo for $150,000.Both companies agreed that the equipment had a five-year remaining life and compute depreciation on the straight-line method.The equipment has no salvage value. Pal reported $470,000 in net income in 2012 (prior to reporting any income from SimCo),and SimCo reported $160,000 in net income. Required: 1.Calculate consolidated net income for 2012. 2.Determine the controlling share of net income for the year if Pal only owned 75% of SimCo. 3.Determine the controlling share of net income for the year if Pal only owned 75% of SimCo AND the equipment transfer was upstream.

Plenny Corporation sold equipment to its 90%-owned subsidiary,Sourdough Corp. ,on January 1,2012.Plenny sold the equipment for $100,000 when its book value was $75,000 and it had a 5-year remaining useful life with no expected salvage value.Straight-line depreciation is used by both companies.Separate balance sheets for Plenny and Sourdough included the following equipment and accumulated depreciation amounts on December 31,2012: Consolidated amounts for equipment and accumulated depreciation at December 31,2012 were respectively

Pogo Corporation acquired a 75% interest in Sperry Corporation on January 1,2009 at a cost equal to book value and fair value.In the same year Sperry sold land costing $25,000 to Pogo for $50,000.On July 1,2012,Pogo sold the land to an unrelated party for $85,000.What was the gain on the sale of the land on the consolidated income statement for 2012?

Piglet Incorporated purchased 90% of the outstanding stock of Sourgrape Company several years ago at book value.At January 1,2010,Sourgrape sold land with a book value of $30,000 to Piglet at its fair market value of $40,000.At the same time,Sourgrape sold the building that was on the land to Piglet.The building had a book value of $80,000 and was sold at its fair value of $120,000.The building had a remaining useful life of 8 years and is depreciated using the straight-line method.The building has no salvage value.On January 1,2012,Piglet sold the land and building to a third party.The sales price was allocated so that the land was sold for $50,000 and the building was sold for $150,000.Income statements for Piglet and Sourgrape for the year ended December 31,2012 are summarized below: Required: Prepare the eliminating/adjusting entries related to the land and building on the consolidated working papers on the following dates: 1.December 31,2010 2.December 31,2011 3.December 31,2012

Several years ago,Peacock International purchased 80% of the outstanding stock of Strutt Incorporated,at a time when Strutt's book values were equal to its fair values.On January 1,2009,Strutt purchased a truck for $160,000 which had no salvage value with a useful life of 8 years,depreciated on a straight-line basis.On January 1,2012,Strutt sold the truck to Peacock Corporation for $56,000.The equipment was estimated to have a five-year remaining life on this date,with no salvage value.All affiliates use the straight-line depreciation method. Required: Prepare the consolidation entries required for Peacock and subsidiary at: 1.December 31,2012 2.December 31,2013 3.December 31,2014 4.December 31,2015

Palmer Corporation purchased 75% of Stone Industries' common stock on January 2,2010.On January 1,2011,Stone sold equipment to Palmer that had a net book value of $16,000 and an original cost of $24,000 for $20,000.On January 1,2011,Palmer sold a building to Stone that had a net book value of $200,000 and an original cost of $250,000 for $300,000.The equipment had a remaining useful life of 8 years,and the building had a remaining useful life of 20 years.Neither asset had salvage value.Both companies use straight-line depreciation. Selected account balances are shown below for Palmer and Stone for the year ended December 31,2011: Required: 1.Prepare the consolidating working paper entries relating to the equipment and building for the year ended December 31,2011. 2.Calculate the following balances for the year ended December 31,2011: A.Consolidated "Other Expenses" B.Consolidated Buildings C.Consolidated Equipment D.Noncontrolling interest in Stone's net income

Pierce Manufacturing owns all of the outstanding voting common stock of Sylvia Company,as acquired several years ago when the book values and fair values of Sylvia's net assets were equal. In 2010,Pierce set out to re-structure the company,and in doing so,re-aligned the manufacturing processes to streamline the use of automated equipment.As a result,they set out to move certain equipment around between the facilities owned by both Pierce and Sylvia,and ultimately agreed on the following transfers and exchange prices.It was agreed that the exchange price would be paid in cash on January 1,2011,the date the equipment was transferred.Straight-line depreciation is used and the different pieces of equipment have no salvage value. Required: 1.Prepare the journal entry that Pierce would record for each transfer listed. 2.Prepare the journal entry that Sylvia would record for each transfer listed. 3.Prepare the consolidation worksheet entries that would be required as a result of the above transactions for 2011.

Use the following information to answer the question(s)below. On January 1,2010,Shrimp Corporation purchased a delivery truck with an expected useful life of five years,and a salvage value of $8,000.On January 1,2012,Shrimp sold the truck to Pacet Corporation.Pacet assumed the same salvage value and remaining life of three years used by Shrimp.Straight-line depreciation is used by both companies.On January 1,2012,Shrimp recorded the following journal entry: Pacet holds 60% of Shrimp.Shrimp reported net income of $55,000 in 2012 and Pacet's separate net income (excludes interest in Shrimp)for 2012 was $98,000. -The noncontrolling interest share for 2012 was

Snow Company is a wholly owned subsidiary of Penguin Corporation.On January 1,2009,Penguin transferred equipment to Snow for $195,000.The equipment had originally cost $250,000,but at the time of transfer,had a $180,000 book value and a five year remaining life.Both companies use the straight-line method of depreciation and assume no salvage value for the equipment. Required: Prepare the consolidation worksheet entries for this asset on the following dates: 1.December 31,2009 2.December 31,2010 3.December 31,2011

Park Incorporated purchased a 70% interest in Silk Company in 2008 at book value.On January 1,2010,equipment having a historical cost of $100,000 and a net book value of $70,000 is sold in an intercompany transfer for $90,000.The equipment has a remaining useful life of five years and no salvage value.Straight-line depreciation is used by both companies.Silk reports net income of $180,000 in 2010 and $200,000 in 2011. Required: 1.Assume Park sold the equipment to Silk. A.Prepare the consolidating worksheet entries for the equipment for 2010 and 2011. B.Calculate the noncontrolling interest share in Silk's income for 2010 and 2011. 2.Assume that Silk sold the equipment to Park. A.Prepare the consolidating worksheet entries for the equipment for 2010 and 2011. B.Calculate the noncontrolling interest share in Silk's income for 2010 and 2011.