Test bank advanced accounting 10e by beams chapter 06

To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Chapter Test Bank INTERCOMPANY PROFIT TRANSACTIONS - PLANT ASSETS Multiple Choice Questions Use the following information for questions and In 2004, Parrot Company sold land to its subsidiary, Tree Corporation, for $12,000 It had a book value of $10,000 In the next year, Tree sold the land for $18,000 to an unaffiliated firm LO1 Which of the following is correct? a No consolidation working paper entry was necessary in 2004 b A consolidation working paper entry was required only if the subsidiary was less than 100% owned in 2004 c A consolidation working paper entry is required each year until the land is sold outside the related parties d A consolidated working paper entry was required only if the land was held for resale in 2004 LO1 The 2004 unrealized gain a was deferred until 2006 b was eliminated from consolidated net income by a working paper entry that credited land $2,000 c made consolidated net income $2,000 less than it would have been had the sale not occurred d made consolidated net income $2,000 greater than it would have been had the sale not occurred ©2009 Pearson Education, Inc publishing as Prentice Hall 6-1 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com LO1 On January 1, 2005, Eagle Corporation sold equipment with a book value of $40,000 and a 20-year remaining useful life to its wholly-owned subsidiary, Rabbit Corporation, for $60,000 Both Eagle and Rabbit use the straight-line depreciation method, assuming no salvage value On December 31, 2005, the separate company financial statements held the following balances associated with the equipment: Eagle Rabbit Gain on sale of equipment $ 20,000 Depreciation expense $ 3,000 Equipment 60,000 Accumulated depreciation 3,000 A working paper entry to consolidate the financial statements of Eagle and Rabbit on December 31, 2005 included a a b c d debit to gain on sale of equipment for $19,000 credit to gain on sale of equipment for $20,000 debit to accumulated depreciation for $1,000 credit to depreciation expense for $3,000 Use the following information for questions and On December 31, 2005, Corella Corporation sold equipment with a three-year remaining useful life and a book value of $21,000 to its 70%-owned subsidiary Hollow Company for a price of $27,000 Corella bought the equipment four years ago for $49,000 LO1 What was the intercompany sale impact on the consolidated financial statements for the year ended December 31, 2005? a b c d LO1 Corella’s Net Income Corella’s Income from Hollow No effect No effect Decreased Increased No effect Decreased No effect Decreased What was the intercompany sale impact on the consolidated financial statements for the year ended December 31, 2005? a b c d Consolidated Net Income Consolidated Net Assets No effect No effect Decreased Decreased No effect Increased Decreased No effect ©2009 Pearson Education, Inc publishing as Prentice Hall 6-2 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com LO1 On January 2, 2005 Kakapo Company sold a truck with book value of $45,000 to Flightless Corporation, its completely owned subsidiary, for $60,000 The truck had a remaining useful life of three years with zero salvage value Both firms use the straight-line depreciation method, and assume no salvage value If Kakapo failed to make year-end equity adjustments, Kakapo’s investment in Flightless at December 31, 2005 was a b c d $5,000 too high $10,000 too low $10,000 too high $15,000 too high LO1, & Use the following information to answer questions through 10 On January 1, 2003, Shrimp Corporation purchased a delivery truck with an expected useful life of five years On January 1, 2005, Shrimp sold the truck to Avocet Corporation and recorded the following journal entry: Cash Accumulated depreciation Truck Gain on Sale of Truck Debit 50,000 18,000 Credit 53,000 15,000 Avocet holds 60% of Shrimp Shrimp reported net income of $55,000 in 2005 and Avocet's separate net income (excludes interest in Shrimp) for 2005 was $98,000 LO1 In preparing the consolidated financial statements for 2005, the elimination entry for depreciation expense was a a b c d LO1 debit for $5,000 credit for $5,000 debit for $15,000 credit for $15,000 In the consolidation working papers, the Truck account was a b c d debited for $3,000 credited for $3,000 debited for $15,000 credited for $15,000 ©2009 Pearson Education, Inc publishing as Prentice Hall 6-3 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com LO2 Consolidated net income for 2005 was a b c d LO4 10 $121,000 $125,000 $131,000 $143,000 The minority interest income for 2005 was a b c d LO2 11 $18,000 $22,000 $23,000 $27,000 Ground Parrot Company completely owns Heathlands Inc On January 2, 2005 Ground Parrot sold Heathlands machinery at its book value of $30,000 Ground Parrot had the machinery two years before selling it and used a five-year straight-line depreciation method, with zero salvage value Heathlands will use a three-year straight-line method In the 2005 consolidated income statement, the depreciation expense a b c d LO2 12 required no adjustment decreased by $4,000 increased by $4,000 increased by $30,000 In reference to the downstream or upstream sale depreciable assets, which of the following statements correct? a b c d of is Upstream sales from the subsidiary to the parent company always result in unrealized gains or losses The initial effect of unrealized gains and losses from downstream sales of depreciable assets is different from the sale of nondepreciable assets Gains, but not losses, appear in the parent-company accounts in the year of sale and must be eliminated by the parent company in determining its investment income under the equity method of accounting Gains and losses appear in the parent-company accounts in the year of sale and must be eliminated by the parent company in determining its investment income under the equity method of accounting ©2009 Pearson Education, Inc publishing as Prentice Hall 6-4 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com LO2 13 Falcon Corporation sold equipment to its 80%-owned subsidiary, Rodent Corp., on January 1, 2005 Falcon sold the equipment for $110,000 when its book value was $85,000 and it had a 5year remaining useful life with no expected salvage value Separate balance sheets for Falcon and Rodent included the following equipment and accumulated depreciation amounts on December 31, 2005: Equipment Less: Accumulated depreciation Equipment-net Falcon Rodent $ 750,000 $ 300,000 ( 200,000) ( 50,000) $ 550,000 $ 250,000 Consolidated amounts for equipment and accumulated depreciation at December 31, 2005 were respectively a b c d LO2 14 $1,025,000 $1,025,000 $1,025,000 $1,050,000 and and and and $245,000 $250,000 $245,000 $250,000 Peregrine Corporation acquired a 90% interest in Cliff Corporation in 2004 at a time when Cliff’s book values and fair values were equal to one another On January 1, 2005, Cliff sold a truck with a $45,000 book value to Peregrine for $90,000 Peregrine is depreciating the truck over 10 years using the straight-line method Separate incomes for Peregrine and Cliff for 2005 were as follows: Sales Gain on sale of truck Cost of Goods Sold Depreciation expense Other expenses Separate incomes Peregrine 1,800,000 $ ( ( ( $ Cliff 1,050,000 45,000 750,000) ( 285,000) 450,000) ( 135,000) 180,000) ( 450,000) 420,000 $ 225,000 $ Peregrine’s investment income from Cliff for 2005 was a b c d $161,550 $162,000 $166,050 $202,500 ©2009 Pearson Education, Inc publishing as Prentice Hall 6-5 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com LO2 15 Kestrel Company acquired an 80% interest in Reptile Corporation on January 1, 2004 On January 1, 2005, Reptile sold a building with a book value of $50,000 to Kestrel for $80,000 The building had a remaining useful life of ten years and no salvage value The separate balance sheets of Kestrel and Reptile on December 31, 2005 included the following balances: Buildings Accumulated Depreciation Buildings $ Kestrel 400,000 120,000 $ Reptile 250,000 75,000 The consolidated amounts for Buildings and Accumulated Depreciation - Buildings that appeared, respectively, on the balance sheet at December 31, 2005, were a b c d LO2 16 and and and and $192,000 $195,000 $192,000 $195,000 Pigeon Corporation purchased land from its 60%-owned subsidiary, Seed Inc., in 2003 at a cost $30,000 greater than Seed’s book value In 2005, Pigeon sold the land to an outside entity for $40,000 more than Pigeon’s book value The 2005 consolidated income statement reported a gain on the sale of land of a b c d LO2 17 $620,000 $620,000 $650,000 $650,000 $40,000 $42,000 $58,000 $70,000 Pied Imperial-Pigeon Corporation acquired a 90% interest in Offshore Corporation in 2003 when Offshore’ book values were equivalent to fair values Offshore sold equipment with a book value of $80,000 to Pied Imperial-Pigeon for $130,000 on January 1, 2005 Pied Imperial-Pigeon is fully depreciating the equipment over a 4-year period by using the straight-line method Offshore’ reported net income for 2005 was $320,000 Pied Imperial-Pigeon’s 2005 net income from Offshore was a b c d $249,250 $250,500 $254,250 $288,000 ©2009 Pearson Education, Inc publishing as Prentice Hall 6-6 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com LO3 18 Lorikeet Corporation acquired a 80% interest in Nectar Corporation on January 1, 2000 at a cost equal to book value and fair value In the same year Nectar sold land costing $30,000 to Lorikeet for $50,000 On July 1, 2005, Lorikeet sold the land to an unrelated party for $110,000 What was the gain on the consolidated income statement? a b c d LO4 19 On January 1, 2005 Rainforest Co recorded a $30,000 profit on the upstream sale of some equipment that had a remaining fouryear life under the straight-line depreciation method The effect of this transaction on the amount recorded in 2005 by the parent company Wompoo as its investment income in the Rainforest was a b c d LO4 20 $48,000 $60,000 $64,000 $80,000 a decrease of $18,000 if the Rainforest was 80% owned a decrease of $27,000 if the Rainforest was 90% owned an increase of $22,500 if the Rainforest was wholly owned an increase of $30,000 if the Rainforest was wholly owned Swift Parrot Corporation acquired a 60% interest in Berries Corp on January 1, 2005, when Berries’s book values and fair values were equivalent On January 1, 2005, Berries sold a building with a book value of $600,000 to Swift Parrot for $700,000 The building had a remaining life of 10 years, no salvage value, and was depreciated by the straight-line method Berries reported net income of $2,000,000 for 2005 What was the noncontrolling interest for 2005? a b c d $710,000 $764,000 $800,000 $900,000 ©2009 Pearson Education, Inc publishing as Prentice Hall 6-7 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com LO1 Exercise Spiniflex Pigeon Company owns 90% of the outstanding stock of Waterhole Corporation This interest was purchased on January 1, 1999, when Waterhole’s book values were equal to its fair values The amount paid by Spiniflex Pigeon included $10,000 for goodwill On January 1, 2000, Spiniflex Pigeon purchased equipment for $100,000 which had no salvage value with a useful life of years on a straight-line basis On January 1, 2005, Spiniflex Pigeon sold the truck to Waterhole Corporation for $40,000 The equipment was estimated to have a four-year remaining life on this date All affiliates use the straight-line depreciation method Required: Prepare all relevant entries with respect to the truck Record the journal entries on Spiniflex Pigeon’s books for 2005 Record the journal entries on Waterhole’s books for 2005 ©2009 Pearson Education, Inc publishing as Prentice Hall 6-8 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com LO1&2 Exercise Stork Corporation paid $15,700 Corporation on January 1, 2004, consisted of $10,000 Capital Stock The excess cost over book value was for a 90% interest in Swamp when Swamp stockholders’ equity and $3,000 of Retained Earnings attributable to goodwill Additional information: Stork sells merchandise to Swamp at 120% of Stork’s cost During 2004, Stork’s sales to Swamp were $4,800, of which half of the merchandise remained in Swamp’s inventory at December 31, 2004 During 2005, Stork’s sales to Swamp were $6,000 of which 60% remained in Swamp’s inventory at December 31, 2005 At year-end 2005 Swamp owed Stork $1,500 for the inventory purchased during 2005 Stork Corporation sold equipment with a book value of $2,000 and a remaining useful life of four years and no salvage value to Swamp Corporation on January 1, 2005 for $2,800 Separate company financial statements for Stork Corporation and Subsidiary at December 31, 2005 are summarized in the first two columns of the consolidation working papers Helpful hint: Stork's investment in Swamp account balance at December 31, 2004 consisted of the following: Investment cost Equity in Swamp’s income for 2004 Less: Unrealized inventory profit Less: Dividends received from Swamp Investment in Swamp, December 31, 2004 $ 15,700 3,600 ( 400) ( $ 1,800) 17,100 Required: Complete the working papers to consolidate the financial statements of Stork Corporation and subsidiary for the year ended December 31, 2005 ©2009 Pearson Education, Inc publishing as Prentice Hall 6-9 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Stork Corporation and Subsidiary Consolidation Working Papers at December 31, 2005 Eliminations Stork Swamp Debit Credit INCOME STATEMENT Sales $ Income from Swamp Gain on equipment sale Cost of Sales ( Other Expenses ( Net income Retained Earnings 1/1 Add: Net income Dividends ( Retained Earnings 12/31 $ BALANCE SHEET Cash Receivables Inventories Equipment-net Land Investment in Swamp Goodwill TOTAL ASSETS $ LIAB & EQUITY Accounts payable Capital Stock Retained Earnings 1/1 Noncontrl Interest 12/31 Noncontrl Interest TOTAL LIAB & EQUITY $ 60,000 Non- Balance Cntrl Sheet $14,000 4,500 800 26,000) ( 28,000) ( 11,300 4,400) 3,600) 6,000 9,500 11,300 7,000) ( 5,000 6,000 2,000) 13,800 $ 9,000 6,000 7,000 10,000 24,000 4,000 3,000 4,000 4,500 9,000 3,500 19,800 70,800 $24,000 7,000 5,000 50,000 10,000 13,800 9,000 70,800 $24,000 ©2009 Pearson Education, Inc publishing as Prentice Hall 6-10 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com LO2 Exercise Barn Owl Corporation acquired 70% of the outstanding voting stock of Cave Inc on January 1, 2003 for $60,000 less than book value The $60,000 reduction was all assigned to a tractor The tractor had a remaining life of 15 years On April 1, 2003, Cave sold land to Barn Owl for a gain of $40,000 and originally cost $35,000 Barn Owl sold the property for $85,000 on October 1, 2005 Barn Owl sold equipment for $96,000 to Cave on January 1, 2004 which had a book value of $80,000 The equipment cost Barn Owl $72,000 The equipment had a remaining useful life of years on the sale date and is depreciated under the straight-line method Required: Prepare a schedule for the calculation of consolidated net income for Barn Owl and subsidiary for 2003, 2004 and 2005 2003 300,000 90,000 Barn Owl’s separate income Cave’s net income 2004 225,000 110,000 2005 60,000 120,000 LO2 Exercise Separate income statements of Nightjar Corporation and its 90%-owned subsidiary, Branch Inc., for 2005 were as follows: Sales Revenue Cost of sales Other expenses Gain on equipment Income from Branch Net income $ ( ( $ Nightjar 2,000,000 1,200,000 ) 400,000 ) 80,000 180,000 660,000 Branch $ 1,200,000 ( 800,000 ) ( 200,000 ) $ 200,000 Additional information: Nightjar acquired its 90% interest in Branch Inc when the book values were equal to the fair values The gain on equipment relates to equipment with a book value of $120,000 and a 4-year remaining useful life that Branch sold to Nightjar for $200,000 on January 2, 2005 The straight-line depreciation method is used In 2004 Nightjar sold inventory to Branch of which the remainder was sold in 2005 ©2009 Pearson Education, Inc publishing as Prentice Hall 6-14 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Intercompany sales Cost of intercompany sales Percentage unsold at year-end $ 2004 300,000 180,000 40 2005 200,000 120,000 50 Required: Prepare a consolidated income statement for Nightjar Corporation and Subsidiary for the year ended December 31, 2005 LO2&3 Exercise Osprey Corporation created a wholly owned subsidiary, Branch Corporation, on January 1, 2003, at which time Osprey sold land with a book value of $90,000 to Branch at its fair market value of $140,000 Also, on January 1, 2003, Osprey sold to Branch equipment with a book value of $130,000 and a fair value of $165,000 The equipment had a remaining useful life of years and is being depreciated under the straight-line method On January 1, 2005, Branch resold the land to an outside entity for $150,000 Branch continues to use the equipment purchased from Osprey Income statements for Osprey and Branch for the year ended December 31, 2005 are summarized below: Sales Gain on sale of land Income from Branch Cost of sales Depreciation expense Other expenses Net income $ ( ( ( $ Osprey 450,000 $ 55,000 220,000 ) ( 95,000 ) ( 37,000 ) ( 153,000 $ Branch 100,000 10,000 50,000 ) 32,000 ) 8,000 ) 20,000 Required: At what amounts did the following items appear on a consolidated income statement for Osprey Corporation and Subsidiary for the year ended December 31, 2005? Gain on Sale of Land Depreciation Expense Consolidated net income ©2009 Pearson Education, Inc publishing as Prentice Hall 6-15 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com LO3 Exercise Separate income statements of Quail Corporation and its 80%-owned subsidiary, Savannah Corporation, for 2005 are as follows: Sales Revenue Gain on equipment Gain on land Cost of sales Other expenses Separate incomes $ Quail 800,000 35,000 $ ( ( $ 400,000 ) 265,000 ) 170,000 ( ( $ Savannah 300,000 20,000 160,000 ) 60,000 ) 100,000 Additional information: Quail acquired its 80% interest in Savannah Corporation when the book values were equal to the fair values The gain on equipment relates to equipment with a book value of $85,000 and a 7-year remaining useful life that Quail sold to Savannah for $120,000 on January 2, 2005 The straight-line depreciation method was used In 2005, Savannah sold land to an outside entity for $80,000 The land was acquired from Quail in 2003 for $60,000 The original cost of the land to Quail was $35,000 Required: Prepare a consolidated income statement for Quail Corporation and Subsidiary for the year 2005 ©2009 Pearson Education, Inc publishing as Prentice Hall 6-16 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com LO3 Exercise Cassowary Corporation acquired a 70% interest in Fruit Corporation in 1999 at a time when Fruit’s book values and fair values were equal In 2003, Fruit sold land to Cassowary for $82,000 that cost $72,000 The land remained in Cassowary’s possession until 2005 when Cassowary sold it outside the combined entity for $102,000 After the books were closed in 2005, it was discovered that Cassowary had not considered the unrealized gain from its intercompany purchase of land in preparing the consolidated financial statements The only entry on Cassowary’s books was a debit to Land and a credit to Cash in 2003 for $82,000, and, in 2005, 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 statements disclosed the following amounts: Consolidated net income Land $ 2003 750,000 200,000 consolidated $ 2004 600,000 240,000 $ financial 2005 910,000 300,000 Required: Determine the correct amounts of consolidated net income for 2003, 2004, and 2005 Determine the correct amounts for Land in 2003, 2004, and 2005 Calculate the amount at which the gain on the sale of land should have been reported in 2005 ©2009 Pearson Education, Inc publishing as Prentice Hall 6-17 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com LO2&4 Exercise 10 Buzzard Corporation acquired 70% of the outstanding voting common stock of Tool Inc in 1998 On January 1, 1999, Tool Inc purchased a depreciable machine for $120,000 cash with an estimated useful life of 10 years that was depreciated on a straight-line basis Tool used the machine until the end of 2004 On January 2, 2005, Tool sold the machine to Buzzard who continued to use the same estimated life and depreciation method that was used by Tool At the end of 2005, Buzzard made the following elimination entry in the consolidation working papers Machine Gain on Sale of Machine Depreciation Expense Accumulated Depreciation 22,000 14,000 2,000 34,000 Required: Answer the following questions concerning Buzzard and Tool How much depreciation expense did Buzzard record in 2005? What amounts were reported for the Machine and the Accumulated Depreciation in the consolidated balance sheet on December 31, 2005? If Tool reported $60,000 of net income for 2005, what amount was assigned to the non-controlling interest? ©2009 Pearson Education, Inc publishing as Prentice Hall 6-18 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com SOLUTIONS Multiple Choice Questions c b c a a d b ($15,000 gain/ years) a ($53,000 - $50,000) b $98,000 + [($55,000 - $15,000 + $5,000) x 60%] = $ 125,000 ($55,000 - $15,000 + $5,000) x 40%= $ 18,000 Combined equipment amounts Less: gain on sale Consolidated equipment balance $ 1,050,000 ( 25,000 ) $ 1,025,000 Combined Accumulated Depreciation Less: Depreciation on gain Consolidated Accumulated Depreciation $ ( 250,000 5,000 ) $ 245,000 Cliff reported income Less: Intercompany gain on truck Plus: Piecemeal recognition of gain = $45,000/10 years Cliff’s adjusted income Majority percentage Income from Cliff $ 225,000 10 a 11 a 12 d 13 a 14 c ( $ 45,000 ) 4,500 184,500 90% 166,050 ©2009 Pearson Education, Inc publishing as Prentice Hall 6-19 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 15 a 16 d 17 c 18 d 19 c 20 b Combined building amounts Less: Intercompany gain Consolidated building amounts $ ( $ 650,000 30,000 ) 620,000 Combined Accumulated Depreciation Less: Piecemeal recognition of gain Consolidated accumulated depreciation $ 195,000 ( 3,000 ) $ 192,000 $ 288,000 Pied Imperial-Pigeon’s share of Roger’s income = ($320,000 x 90%) = Less: Profit on intercompany sale ($130,000 - $80,000) x 90% = Add: Piecemeal recognition of deferred profit ($50,000/4 years) x 90% = Income from Offshore $ 11,250 254,250 $30,000 - (1/4 x $30,000) = $ 22,500 ( 45,000 ) ©2009 Pearson Education, Inc publishing as Prentice Hall 6-20 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Exercise Requirement 1: Spiniflex Pigeon’s books 01/01/05 Cash Accumulated Depreciation Equipment Gain on Sale 40,000 62,500 100,000 2,500 Requirement 2: Waterhole’s books 01/01/05 12/31/05 Equipment Cash 40,000 40,000 Depreciation Expense Accumulated Depreciation 7,500 7,500 Exercise Stork Corporation and Subsidiary Consolidation Working Papers at December 31, 2005 Eliminations Stork Swamp Debit Credit INCOME STATEMENT Sales $ Income from Swamp Gain on equipment sale Cost of Sales Other Expenses Minority income Net income Retained Earnings 1/1 Add: Net income Dividends Retained Earnings 12/31 BALANCE SHEET Cash Receivables Inventories Equipment-net Land Investment in Swamp 60,000 a $ 6,000 4,500 e 4,500 800 d b ( 26,000) ( ( 28,000) ( 11,300 9,500 11,300 ( 7,000) ( $ $14,000 4,400) 3,600) Non- Consolcontl idated $68,000 800 600 a c d $ 6,000 400 200 6,000 5,000 f 6,000 2,000) 5,000 e (24,600) (31,400) 600( 600) 11,400 9,500 11,400 1,800 ( 200) ( 7,000) 13,800 $ 9,000 $13,900 6,000 7,000 10,000 24,000 4,000 3,000 4,000 4,500 9,000 3,500 9,000 9,500 13,900 32,400 7,500 c 19,800 g b d 1,500 600 600 400 e f 2,700 17,500 ©2009 Pearson Education, Inc publishing as Prentice Hall 6-21 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Goodwill TOTAL ASSETS $ LIAB & EQUITY Accounts payable Capital Stock Retained Earnings 1/1 Noncntrl Interest 12/31 Noncntrl Interest TOTAL LIAB & $ EQUITIES f 4,000 g 5,000 g 1,500 10,500 50,000 10,000 f 10,000 50,000 13,800 9,000 70,800 $24,000 7,000 4,000 $76,300 13,900 f 1,500 1,500 1,900 70,800 1,900 $24,000 $76,300 Exercise Sales Income from Squab Gain on sale of equipment Gain on sale of land Cost of sales Depreciation expense Other expenses Net income Dove 450,000 46,000 16,000 ( 211,500) ( 45,500) ( 120,000) 135,000 Squab 200,000 ( ( ( 5,000 91,500) 23,500) 34,000) 56,000 Consolidated 650,000 0 20,000 ( 303,000) ( 67,000) ( 154,000) 146,000 Exercise Brolga Corporation and Subsidiary Consolidation Working Papers at December 31, 2005 Eliminations Brolga Dance Debit Credit INCOME STATEMENT Sales $ 90,000 $35,000 Income from 2,300 Dance Gain on equipment sale 1,000 Cost of sales ( 40,000) ( 20,000) Depreciation exp Minority income Other Expenses Net income Retained Earnings 1/1 ( 6,000) ( ( 24,500) ( 22,800 25,000 a f d c 2,000) 8,000) h 5,000 12,000 g NonConsolContrl idated $ 6,000 2,300 1,000 300 a b e 500 $ 119,000 $ 6,000 400 200 ( 53,900) ( 7,800) $ 1,500 ( 1,500) ( 33,000) 22,800 12,000 ©2009 Pearson Education, Inc publishing as Prentice Hall 6-22 25,000 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Add: Net income Dividends ( Retained Earnings 12/31 $ BALANCE SHEET Cash Receivables Dividends Rec Inventories Equipment-net Investment in Dance Patent TOTAL ASSETS $ LIAB & EQUITY Accounts payable Dividend payable Other Debt Capital stock Retained Earnings 1/1 Noncontrl Interest 12/31 Noncontrl Interest TOTAL LIAB & $ EQUITY 22,800 10,000) ( 5,000 3,000) f 22,800 900) ( 10,000) 2,100 ( 37,800 $14,000 $37,800 10,350 1,500 1,050 12,000 41,000 1,500 2,700 11,850 3,500 6,000 23,500 g i j c 200 d 400 g f 9,500 h i j 700 1,050 g 15,000 e b 28,200 94,100 $33,700 6,300 10,000 40,000 2,200 1,500 1,000 15,000 37,800 14,000 700 1,050 300 1,000 28,400 200 500 17,700 63,700 9,000 $105,750 7,800 450 11,000 40,000 37,800 g 8,100 8,100 8,700 94,100 $33,700 ©2009 Pearson Education, Inc publishing as Prentice Hall 6-23 8,700 $105,750 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Exercise Barn Owl’s separate income Cave’s net income Tractor Adjustment Land gain Equipment gain Depreciation Expense Minority Interest Expense Net Income Tractor Adjustment 60,000/15 Land gain (40,000) Land gain 28,000+10,000 Equipment Depreciation expense (96,00080,000)/8 Minority Interest Expense [90,000-40,000]*.3=15,000 Minority Interest Expense 110,000*.3 Minority Interest Expense (85,000-75,000)*.3=3,000 + 120,000*.3 2003 300,000 90,000 4,000 (40,000) (16,000) (2,000) (15,000) 321,000 4,000 (40,000) 2004 225,000 110,000 4,000 2005 60,000 120,000 4,000 38,000 (2,000) (33,000) 304,000 (2,000) (39,000) 181,000 4,000 4,000 38,000 (16,000) (2,000) (2,000) (2,000) (15,000) (33,000) (39,000) ©2009 Pearson Education, Inc publishing as Prentice Hall 6-24 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Exercise Nightjar Corporation and Subsidiary Consolidated Income Statement for the year ended December 31, 2005 Sales (see below) Cost of sales (see below) Other expenses (see below) Minority interest (see below) Consolidated net income $ ( ( ( 3,000,000 1,792,000 ) 580,000 ) 20,000 ) 608,000 Sales: $2,000,000 + 1,200,000 - 200,000 $ 3,000,000 Cost of Sales $1,200,000 + 800,000 - 200,000 - 48,000 + 40,000 $ 1,792,000 Other expenses: $400,000 + 200,000 - 20,000 $ 580,000 Minority income Net income from Branch x 10%: ($200,000 x 10%) = $ 20,000 $ ©2009 Pearson Education, Inc publishing as Prentice Hall 6-25 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Exercise Requirement The gain on the sale of the land in 2005 was equal to the sales price minus the original cost of the land when it was first acquired by the combined entity In this case the gain was $150,000 - $90,000, or $60,000 Requirement The consolidated amount of depreciation expense was the combined amounts of depreciation expense showing on the separate income statements minus the piecemeal recognition of the gain on the sale of the equipment Thus, the consolidated amount of depreciation expense was $95,000 + $32,000 – ($35,000/4 years) = $118,250 Requirement Consolidated net income: Osprey separate income (not including Income from Branch)= $153,000 - $55,000 = Income from Branch Plus: Deferred gain on land Plus: Piecemeal recognition of gain on equipment sale: $35,000 gain/4 years = Consolidated net income $ 98,000 20,000 50,000 8,750 $176,750 Exercise Quail Corporation and Subsidiary Consolidated Income Statement for the year ended December 31, 2005 Sales Gain on land ($20,000 + $25,000) Cost of sales Other expenses (see below) Minority interest (see below) Consolidated net income $ ( ( ( 1,100,000 45,000 560,000 ) 320,000 ) 20,000 ) 245,000 Other expenses: $265,000 + $60,000 - $5,000 piecemeal recognition of gain on equipment $ 320,000 Minority income Net income from Savannah x 20%: ($100,000 x 20%) = $ 20,000 $ ©2009 Pearson Education, Inc publishing as Prentice Hall 6-26 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Exercise Requirement Consolidated net income as reported Less: $10,000 deferred gain Plus: Minority interest portion of the gain Plus: Deferred gain Corrected consolidated net income $ 743,000 $ 600,000 $ 917,000 Requirement Land account as reported Less: Intercompany profit Restated land account 2003 $ 200,000 -10,000 $ 190,000 2004 $ 240,000 -10,000 $ 230,000 2005 $ 300,000 2003 2004 2005 $ 750,000 -10,000 $ 600,000 $ 910,000 3,000 7,000 $ 300,000 Requirement Final sales price outside the entity minus the original cost to the combined entity equals $102,000 minus $72,000 = $30,000 ©2009 Pearson Education, Inc publishing as Prentice Hall 6-27 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Exercise 10 Requirement On the consolidated balance sheet, the machine must be reported at its original cost when Tool purchased it on January 1, 1999, which is $120,000 Since the elimination entry debited the machine account for $22,000 which must be the amount needed to bring the machine account up to $120,000, Buzzard must have recorded the machine at $98,000 Since the remaining useful life is seven years, Buzzard will record $14,000 of depreciation expense each year Requirement The correct balances on the consolidated balance sheet for the Machine and Accumulated Depreciation accounts are the balances that would be in the accounts if there had been no sale The balance in the machine account would be the original purchase price to Tool or $120,000 The balance in the Accumulated Depreciation account will be the original amount of annual depreciation, ($12,000) times the number of years the machine has been depreciated (4), or $48,000 Requirement The minority interest income will be 30% of Tool’ adjusted net income Tool’ reported net income of $60,000 is reduced by the $14,000 unrealized gain on the sale of the machine and is increased by the piecemeal recognition of the gain, which is $2,000 The net result of $48,000 is then multiplied by 30% to calculate a $14,400 income for the non-controlling interest ©2009 Pearson Education, Inc publishing as Prentice Hall 6-28 ... statement, the depreciation expense a b c d LO2 12 required no adjustment decreased by $4,000 increased by $4,000 increased by $30,000 In reference to the downstream or upstream sale depreciable assets,... reduced by the $14,000 unrealized gain on the sale of the machine and is increased by the piecemeal recognition of the gain, which is $2,000 The net result of $48,000 is then multiplied by 30%... Education, Inc publishing as Prentice Hall 6-3 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com LO2 Consolidated net income for 2005 was a b c