Exam 6: Intercompany Profit Transactions - Plant Assets

Pigeon Corporation purchased land from its 60%-owned subsidiary,Seed Inc.,in 2012 at a cost $50,000 greater than Seed's book value.In 2014,Pigeon sold the land to an outside entity for $20,000 more than Pigeon's book value.The 2014 consolidated income statement should report a gain on the sale of land of

Plock Corporation,the 75% owner of Seraphim Company,reported net income of $400,000 in 2013,prior to recording any income from Seraphim.Seraphim reported net income for that same year of $80,000 on their stand-alone statements.During 2013,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 2013,and controlling share of consolidated net income for 2013. 2.Assuming that the vehicle transfer was upstream,calculate Plock's consolidated net income for 2013,and controlling share of consolidated net income for 2013.

Unrealized inventory profits self-correct over any three accounting periods.

Gross profit on inventory items sold for use in the operations of an affiliate will be realized for consolidated statement purposes immediately.

Petrol Company acquired a 90% interest in Seadig Corporation on January 1,2013.On January 1,2014,Seadig sold a building with a book value of $120,000 to Petrol for $150,000.The building had a remaining useful life of ten years and no salvage value.Straight-line depreciation is used.The separate balance sheets of Petrol and Seadig on December 31,2014 included the following balances: The consolidated amounts for Buildings and Accumulated Depreciation - Buildings that appeared,respectively,on the balance sheet at December 31,2014,were

Several years ago,Pilot International purchased 70% of the outstanding stock of Skyway Incorporated,at a time when Skyway's book values were equal to its fair values.On January 1,2011 Skyway purchased a truck for $80,000 which had no salvage value with a useful life of 8 years,depreciated on a straight-line basis.On January 1,2014,Skyway sold the truck to Pilot Corporation for $28,000.The truck was estimated to have a five-year remaining life on this date,and no salvage value.All affiliates use the straight-line depreciation method. Required: Prepare all relevant entries with respect to the truck. 1.Record the journal entries on Pilot's books for 2014. 2.Record the journal entries on Skyway's books for 2014. 3.Prepare the consolidation entries required for Pilot and subsidiary for 2014 as a result of this transaction.

Pigeon Company owns 80% of the outstanding stock of Spiniflex Corporation,which was purchased on January 1,2008,when Spiniflex's book values were equal to its fair values.The amount paid by Pigeon included $16,000 for goodwill. On January 1,2009,Pigeon purchased a truck for $40,000 which had no salvage value with a useful life of 8 years,depreciated on a straight-line basis.On January 1,2014,Pigeon sold the truck to Spiniflex Corporation for $18,000.The truck was estimated to have a three-year remaining life on this date and no salvage value.All affiliates use the straight-line depreciation method. Required: Prepare all relevant entries with respect to the truck. 1.Record the journal entries on Pigeon's books for 2014. 2.Record the journal entries on Spiniflex's books for 2014. 3.Prepare the consolidation entries required for Pigeon and subsidiary for 2014 as a result of this transaction.

On January 1,2013,Pilgrim Imaging purchased 90% of the outstanding common stock of Snapshot Productions for $585,000 cash.The remaining 10% of Snapshot had an assessed fair value of $65,000 at that time.Snapshot had equipment that was undervalued on their books by $50,000,and an unrecorded patent with a fair value of $15,000.The equipment had five years remaining to its useful life,and the patent had 10 years remaining to its useful life. On January 1,2014,Pilgrim sold Snapshot a building for $100,000 that had originally cost $140,000.The book value was $60,000 at the date of transfer,and had a five-year remaining life at the date of transfer.Straight-line depreciation is used with no salvage value.Several line items from the companies' separate December 31,2014 trial balances are shown below. Required: Determine consolidated balances for each of the accounts listed as of December 31,2014.

Use the following information to answer the question(s) below. On January 1, 2012, Shrimp Corporation purchased a delivery truck with an expected useful life of five years, and a salvage value of $8,000. On January 1, 2014, 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, 2014, Shrimp recorded the following journal entry: -In the eliminating/adjusting entries on consolidation working papers for 2014,the Truck account was

For upstream sales the total amount of unrealized gains and losses are allocated between controlling and noncontrolling interest shares.

On January 1,2014,Bigg Corporation sold equipment with a book value of $20,000 and a 10-year remaining useful life to its wholly-owned subsidiary,Little Corporation,for $30,000.Both Bigg and Little use the straight-line depreciation method,assuming no salvage value.On December 31,2014,the separate company financial statements held the following balances associated with the equipment: A working paper entry to consolidate the financial statements of Bigg and Little on December 31,2014 included a

Use the following information to answer the question(s) below. In 2014, Parla Corporation sold land to its subsidiary, Sidd Corporation, for $38,000. It had a book value of $24,000. In the next year, Sidd sold the land for $41,000 to an unaffiliated firm. -The 2014 unrealized gain from the intercompany sale

On January 2,2014,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 2014 (prior to reporting any income from SimCo),and SimCo reported $160,000 in net income. Required: 1.Calculate consolidated net income for 2014. 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.

Plower Corporation acquired all of the outstanding voting common stock of the Squab Corporation several years ago when the book values and fair values of Squab's net assets were equal. On April 1,2012,Plower sold land that cost $25,000 to Squab for $40,000.Squab resold the land for $45,000 on December 1,2014. On July 1,2014,Plower sold equipment with a book value of $10,000 to Squab for $26,000.Squab is depreciating the equipment over a four-year period using the straight-line method.The equipment has no salvage value. Required: The first two columns in the working papers presented below summarize income statement information from the separate company financial statements of Plower and Squab for the year ended December 31,2014.Fill in the consolidated working paper columns to show how each of the items from the separate company reports will appear in the consolidated income statement for the year ended December 31,2014.

On January 1,2014 Saffron Co.recorded a $40,000 profit on the upstream sale of some equipment that had a remaining four-year life under the straight-line depreciation method.The equipment has no salvage value.Saffron had separate income of $100,000 in 2014.The parent company,Pommel Incorporated,owns 90% of Saffron.Pommel would report investment income from Saffron in 2014 of

Prey Corporation created a wholly owned subsidiary,Sage Corporation,on January 1,2013,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 1,2013,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 1,2015,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 31,2015 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 31,2015? 1.Gain on Sale of Land 2.Depreciation Expense 3.Consolidated net income 4.Controlling interest share of consolidated net income

Piglet Incorporated purchased 90% of the outstanding stock of Sourgrape Company several years ago at book value.At January 1,2012,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 1,2014,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 31,2014 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 31,2012 2.December 31,2013 3.December 31,2014

A gain or loss on sales downstream from parent to subsidiary is initially included in parent income and must be 100% eliminated.

An entry is necessary to eliminate the full amount of the gain on the sale of land and to reduce the land to its cost basis to the consolidated entity whether the intercompany sale is upstream or downstream.

Parrot Company owns all the outstanding voting stock of Southern Manufacturing.On January 1,2014,Parrot sold machinery to Southern at its book value of $24,000.Parrot had the machinery three years before selling it and used an eight-year straight-line depreciation method,with zero salvage value.Southern will use the straight-line depreciation method,and assumes the machine has five years remaining and no salvage value.In the 2014 consolidating working papers,the depreciation expense