chapter 7 · chapter 07 -intercompany transfers of services and noncurrent assets 7-2 q7-10 the...

Chapter 07 - Intercompany Transfers of Services and Noncurrent Assets

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CHAPTER 7

INTERCOMPANY TRANSFERS OF SERVICES AND NONCURRENT ASSETS

ANSWERS TO QUESTIONS

Q7-1 Profits on intercorporate sales generally are considered to be realized when the affiliate that has purchased the item sells it to a nonaffiliate. For depreciable or amortizable items that are used by the affiliate in its operations, profits are considered to be realized as the purchaser depreciates or amortizes the asset.

Q7-2 An upstream sale occurs when a subsidiary sells an item to the parent company. If the asset is not resold before the end of the period, the parent is the company holding the asset and any unrealized profits are recorded on the books of the subsidiary.

Q7-3 If the purchaser records the services received as an expense, both revenues and expenses will be overstated in the consolidated income statement in the period in which the intercorporate services are provided. In the event the services are capitalized by the purchaser, the cost of the asset will be overstated, depreciation expense and accumulated depreciation will be overstated if the services are assigned to a depreciable asset, and service revenue will be overstated.

Q7-4 (a) Unrealized profit on an intercorporate sale generally is included in the reported net income of the seller.

(b) All unrealized profit on current-period intercorporate sales must be excluded from consolidated net income until realized through resale to a nonaffiliate.

Q7-5 Profits on intercompany sales are included in consolidated net income in the period in which the items are sold to a nonaffiliate. If there are unrealized profits on the books of one of the companies at the start of the period and the item is sold to a nonaffiliate during the current period, the intercompany profit is included in the computation of consolidated net income for the current period.

Q7-6 The profits continue to be unrealized in this case and therefore must be eliminated from both the beginning and ending asset and retained earnings balances when consolidated statements are prepared. There should be no income statement effect for the current period.

Q7-7 A downstream sale is a sale from the parent to one of its subsidiaries. If the asset is not resold before the end of the period, the subsidiary is the company holding the asset at year-end and any unrealized profits are recorded on the books of the parent company.

Q7-8 The entire balance of unrealized profits is eliminated in all cases. While the direction of the sale will affect the allocation of unrealized profits between companies, it does not change the total amount of profit eliminated.

Q7-9 Consolidated net income is reduced by the amount of unrealized profits assigned to the shareholders of the parent company. When a downstream sale occurs, all the profit is on the parent's books and consolidated net income is reduced by the full amount of any unrealized profit. On the other hand, when an upstream sale occurs, all the intercorporate profit is recorded on the books of the subsidiary and the amount of income assigned to both the parent company shareholders and the noncontrolling shareholders is reduced by a proportionate amount of any unrealized profit.


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Q7-10 The amount of intercorporate profit realized in the current period from prior years' sales to the parent is added to the reported net income of the subsidiary in computing income assigned to the noncontrolling interest.

Q7-11 Income assigned to noncontrolling interest for the current period will be less than a proportionate share of the reported net income of the subsidiary. In determining the amount of income to be assigned to the noncontrolling interest in the consolidated income statement, the net income reported by the subsidiary must be adjusted to exclude any unrealized gain recorded during the period on the sale of depreciable assets to the parent. On the other hand, if an unrealized loss had been recorded, the basis used in assigning income to the noncontrolling interest would be greater than the reported net income of the subsidiary. Such adjustments must be made to assure that the income assigned to noncontrolling interest is based on the contribution of the subsidiary to consolidated net income rather than the amount the subsidiary may have reported as net income.

Q7-12 All other factors being equal, the income assigned to noncontrolling interest will be larger if the sale occurs at the start of the current period. Some part of the gain will be considered realized in the current period as the parent depreciates the asset if the sale occurs before year-end. None of the gain will be considered realized in the period of transfer if the sale occurs at year-end.

Q7-13 As in all other cases, income from the subsidiary recorded on the parent's books must be eliminated in preparing the consolidated income statement and an appropriate amount of subsidiary net income must be assigned to the noncontrolling interest if the parent owns less than 100 percent of the subsidiary's stock. The gain recorded on the parent's books also must be eliminated.

Q7-14 Depreciation expense recorded by the subsidiary is overstated from the viewpoint of the consolidated entity when the subsidiary pays the parent more than book value for the asset at the start of the period. As a result, an eliminating entry is needed to reduce depreciation expense and accumulated depreciation by the amount of excess depreciation recorded during 20X3.

Q7-15 Following an intercorporate sale of a depreciable asset, the eliminating entries should adjust the balance in the asset account to reflect the original purchase price to the first owner and accumulated depreciation should be adjusted to reflect the balance that would be reported if the asset were still held by the first owner. In the case of an intercorporate sale of an intangible asset, only the unamortized balance normally is reported and an eliminating entry is needed to adjust the carrying value to that which would be reported if the asset were still held by the first owner.

Q7-16 Profit on an intercorporate sale of land is considered realized at the time the purchaser sells the land to a nonaffiliate. Profit on equipment normally is considered realized as the asset is used and depreciated on the books of the purchaser. Equipment typically is considered to be used up in the production process and therefore is charged to expense over its remaining economic life, while land is not.

Q7-17 A portion of the profit is considered realized each period as the asset is depreciated by the purchaser. Thus, the net amount considered unrealized decreases each period and a smaller debit to beginning retained earnings is needed.


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Q7-18A The balance in the investment account will depend on which method the parent uses to account for its investment in the subsidiary. If the parent uses (a) the cost method or (b) the modified equity method, no adjustments are made on the parent company's books for unrealized intercompany profits and the balance in the investment account will be the same as if there were no unrealized profits. If the parent uses (c) the fully-adjusted equity method, the balance in the investment account will be reduced by the full amount of the unrealized profit when the profit is on the parent's books and by a proportionate share of the unrealized profit when it is on the subsidiary's books.

SOLUTIONS TO CASES

C7-1 Correction of Elimination Procedures

MEMO

To: Controller Plug Corporation

From: , CPA

Re: Elimination of Intercompany Profit on Equipment

This memo is in response to our review of the elimination procedures used in preparing the consolidated statements for Plug Corporation at December 31, 20X2. You have correctly identified the need to eliminate the effects of the intercorporate sale of equipment. In preparing your consolidated statements, all intercompany balances and transactions should be eliminated. [ARB 51, Par. 6; ASC 810]

Your eliminating entry recorded at December 31, 20X2, was:

Equipment 150,000

Loss on Sale of Equipment

150,000

This entry correctly eliminates the $150,000 loss recorded by Coy January 1, 20X2, on the sale of equipment to Plug and adds $150,000 to the equipment account. By adding back $150,000 to equipment, the balance is adjusted to $1,000,000 ($850,000 + $150,000). This represents the carrying value of the equipment on Coy’s books at the time of sale but does not reflect the purchase price paid by Coy ($1,200,000) or the accumulated depreciation at the time of sale ($200,000). Moreover, the eliminating entry above understates depreciation expense for the year. The correct eliminating entry at December 31, 20X2, is:

Equipment 350,000

Depreciation Expense 15,000

Accumulated Depreciation

215,000

Loss on Sale of Equipment

150,000

A debit of $350,000 to equipment is required to raise the balance from $850,000 recorded by Plug to $1,200,000, the initial purchase price to the consolidated entity. Depreciation expense must be increased by $15,000 from $85,000 ($850,000/10 years) recorded by Plug to $100,000 ($1,200,000/12 years) based on the initial purchase price. Accumulated depreciation must be credited by $215,000 to adjust from the $85,000 [($85,000/10 years) x 1 year] reported by Plug to $300,000 [($1,200,000/12 years) x 3 years]. As previously noted, the $150,000 loss recorded


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by Coy must be eliminated. If the amounts included in second eliminating entry are omitted, consolidated net income for 20X2 and the retained earnings balance at December 31, 20X2, will be overstated and the balances for equipment and accumulated depreciation will be understated.

Primary citation: ARB 51, Par. 6; ASC 810

C7-2 Elimination of Intercorporate Services

MEMO

To: Chief Accountant Dream Corporation

From: , CPA

Re: Elimination of Legal Services Provided by Parent Company

This memo is in response to our discussion regarding the elimination of intercompany services in preparing consolidated financial statements for Dream Corporation. It is my understanding that at present Dream Corporation does not eliminate such services. In preparing consolidated financial statements all intercompany balances and transactions should be eliminated. [ARB 51, Par. 6; ASC 810]

The legal services provided by Dream Corporation to Classic Company and Plain Company are intercompany transactions that should be eliminated. If the revenues recorded by the parent are equal to the expenses recorded by the subsidiaries and both are properly recorded, elimination of these transactions will have no impact on reported net income but will reduce consolidated revenues and expenses by equal amounts. Financial statement readers will receive a more accurate picture of operations of the consolidated entity if the appropriate amounts are reported. The legal services provided to Classic Company in 20X3 should be eliminated with the following entry:

Legal Services Revenue 80,000

Legal Services Expense

80,000

The information on intercorporate services provided to Plain Company indicates that an additional adjustment is needed in the consolidation process. Although Plain Company recorded its $150,000 payment to the parent as a legal expense, it should have been recorded as an investment in land to be used in future development of its strip mine. This error should be corrected on the books of Plain Company. If it is not, the eliminating entry prepared at December 31, 20X3, should include an adjustment to reflect the appropriate investment in land and would be recorded as:


Land 100,000

Legal Services Expense

150,000

Wage and Salary Expense

100,000


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Care must be taken to capitalize only the cost of legal services in this case. The eliminating entry should contain a debit of $100,000 ($150,000/1.50) to land since Dream Corporation bills its services to the subsidiaries at 150 percent of the cost of services provided. Had Plain Company debited land for its $150,000 payment to Dream, the eliminating entry at December 31, 20X3, would have been:


Land

50,000

Wage and Salary Expense

100,000

C7-2 (continued)

No eliminating entry would be required at December 31, 20X4, on the legal services provided to Classic Company in 20X3. The conditions of the intercorporate transfer of services to Plain Company require an eliminating entry at December 31, 20X4, and in following years, as long as Plain Company owns the strip mine. The entry at December 31, 20X4, would be:

Land 100,000

Investment in Plain

100,000

Had Plain Company debited land for its $150,000 payment to Dream in 20X3, the eliminating entry at December 31, 20X4, would require a $50,000 debit to Investment in Plain and a $50,000 credit to land.

Primary citation: ARB 51, Par. 6; ASC 810

C7-3 Noncontrolling Interest

a. When there are no unrealized profits on the subsidiary's books, a pro rata portion of the reported net income of the subsidiary is assigned to the noncontrolling interest, adjusted for the noncontrolling interest’s share of any amortization or write-off of differential.

b. When there are no unrealized profits on the subsidiary's books, the noncontrolling interest is reported in the consolidated balance sheet at an amount equal to a pro rata portion of the book value of the net assets of the subsidiary plus the noncontrolling interest’s share of any remaining differential.

c. The effect of unrealized intercompany profits depends on which company has recorded the profits. Those recorded on the books of the parent do not affect the income assigned to the noncontrolling interest. When subsidiary net income includes unrealized intercompany profits, the portion of consolidated net income assigned to the noncontrolling interest is reduced by its portion of the unrealized profit in the period of the intercorporate sale.

(1) On a sale of land, the intercompany profit remains unrealized until the land is sold to a nonaffiliate. When the land is resold, the profit is added to the reported net income of the subsidiary in computing the portion of consolidated net income assigned to the noncontrolling interest.

(2) On an intercorporate sale of a depreciable asset, a portion of the intercompany profit is


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considered realized each period as the purchaser depreciates the asset. Thus, in the period of the intercorporate sale, the adjustment to subsidiary net income for unrealized profits is based on the gain or loss less any portion considered realized before the end of the period. Each period thereafter, a portion of the profit or loss is considered realized and treated as an adjustment to subsidiary income in determining the portion of consolidated net income assigned to the noncontrolling interest.

d. Noncontrolling shareholders of a subsidiary generally will not gain a great deal of useful information from the consolidated financial statements. Their primary focus must continue to be on the income, assets, and liabilities of the subsidiary in which they hold direct ownership. In the event there are a number of transactions with the parent or other affiliates, the success of the operations of the entire economic entity may provide information useful to the noncontrolling shareholders. Debt guarantees or other assurances by the parent may also lead to an examination of the parent company and consolidated statements.

C7-4 Intercompany Sale of Services

a. When preparing consolidated financial statements, Schwartz's revenue from the sale of services to Diamond and Diamond's expenses associated with the services acquired from Schwartz must be eliminated. The expenses related to the janitorial and maintenance activities that will be reported in the consolidated income statement will be the actual salary and associated costs incurred by Schwartz to provide the services to Diamond. The eliminations have no effect on consolidated net income because revenues and expenses of equal amount are eliminated in the preparation of the consolidated financial statements.

b. Intercompany profits from the sale of services to an affiliate normally are considered realized at the time the services are provided. Realization of intercompany profits on services normally is considered to occur as the services are consumed, and services such as maintenance and repair services normally are considered to be consumed by the purchasing affiliate at the time received.

C7-5 Intercompany Profits

Answers can be found in the companies' 10-K filings with the SEC and in their annual reports. Note that financial statements are often included in the Form 10-K by reference to the company’s annual report. In such cases, the financial statements are often shown in a separate exhibit rather than in Item 8 of the Form 10-K.

a. Verizon (www.verizon.com) eliminates all intercompany profits. It discontinued the use of regulatory accounting as provided by FASB 71 in 1994 and now no longer applies the provisions of FASB 71.

b. All of Harley-Davidson’s (www.harleydavidson.com) intercompany transactions are eliminated except some occurring between the Motorcycles and Financial Services segments. Some interest and fees recognized as income by Financial Services and expense by Motorcycles are not eliminated. This leads to higher finance income and higher expenses, but net income is unaffected.

http://www.verizon.com

http://www.harleydavidson.com


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SOLUTIONS TO EXERCISES

E7-1 Multiple-Choice Questions on Intercompany Transfers [AICPA Adapted]

1. c

2. d

3. b

4. a

5. b Depreciation expense recorded by Pirn $40,000

Depreciation expense recorded by Scroll 10,000

Total depreciation reported $50,000

Adjustment for excess depreciation charged

by Scroll as a result of increase in

carrying value of equipment due to gain

on intercompany sale ($12,000 / 4 years) (3,000)

Depreciation for consolidated statements $47,000

E7-2 Multiple-Choice Questions on Intercompany Transactions

1. d When only retained earnings is debited, and not the noncontrolling interest, a gain has been recorded in a prior period on the parent's books.

2. a The costs incurred by Bottom to develop the equipment are research and development costs and must be expensed as they are incurred (FASB Statement No. 2, par. 12; ASC 730-10-25-1). Transfer to another legal entity does not cause a change in accounting treatment within the economic entity.

3. b The $39,000 paid to Gold Company will be charged to depreciation expense by Top Corporation over the remaining 3 years of ownership. As a result, Top Corporation will debit depreciation expense for $13,000 each year. Gold Company had charged $16,000 to accumulated depreciation in 2 years, for an annual rate of $8,000. Depreciation expense therefore must be reduced by $5,000 ($13,000 - $8,000) in preparing the consolidated statements.

4. a TLK Corporation will record the purchase at $39,000, the amount it paid. Gold Company had the equipment recorded at $40,000; thus, a debit of $1,000 will raise the equipment balance back to its original cost from the viewpoint of the consolidated entity.


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E7-2 (continued)

5. b Reported net income of Gold Company

$ 45,000

Reported gain on sale of equipment $15,000

Intercompany profit realized in 20X6 (5,000)

(10,000)

Realized net income of Gold Company

$ 35,000

Proportion of stock held by

noncontrolling interest

x .40

Income assigned to noncontrolling interests $ 14,000

6. c Operating income reported by Top Corporation $ 85,000

Net income reported by Gold Company 45,000

$130,000

Less: Unrealized gain on sale of equipment

($15,000 - $5,000) (10,000)

Consolidated net income $120,000

E7-3 Elimination Entries for Land Transfer

a. Eliminating entry, December 31, 20X4:

Gain on Sale of Land 10,000

Land

10,000

Eliminating entry, December 31, 20X5:

Investment in Lowly 10,000

Land

10,000

b. Eliminating entry, December 31, 20X4:


Land

10,000


Investment in Lowly 6,000

NCI in NA of Lowly 4,000

Land

10,000


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E7-4 Intercompany Services

a. Consolidated net income will not change.

b. One hundred percent of the intercompany services must always be eliminated. Thus, a change in the level of ownership of the subsidiary will not have an impact on the amount eliminated or on consolidated net income.

c. $38,000 = $70,000 - $32,000

E7-5 Elimination Entries for Intercompany Services

Two eliminating entries are required:

Delivery Service Revenue 76,000

Delivery Service Expense

76,000

Accounts Payable 18,000

Accounts Receivable

18,000

E7-6 Elimination Entries for Depreciable Asset Transfer: Year-End Sale a.

Accumulated Truck

Depreciation Northern

40,000

Actual

0

5,000

15,000

Pam

45,000

"As If" 15,000

Eliminate the gain on Truck & correct asset's basis: Gain on sale

10,000

Truck

5,000


15,000

b. Accumulated

Truck

Depreciation Northern

40,000

Actual

4,000

5,000

1,000

15,000

Pam

45,000

"As If"

18,000

Eliminate the gain on Truck & correct asset's basis:

Investment in Northern

10,000

Truck

5,000


15,000


1,000

Depreciation Expense

1,000


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E7-7 Transfer of Land



Land

45,000


Investment in Roan 31,500

NCI in NA of Roan 13,500

Land

45,000

b. Eliminating entries, December 31, 20X3 and 20X4:

Investment in Roan 30,000

Land

30,000

E7-8 Transfer of Depreciable Asset at Year-End a.

Truck


Minnow Corp.

210,000

Actual

0

90,000

120,000

Frazer Corp.

300,000

"As If"

120,000

Eliminate the gain on Truck & correct asset's basis: Gain on sale

30,000

Truck

90,000


120,000

Computation of gain on sale of truck:

Price paid by Minnow $210,000

Cost of truck to Frazer $300,000

Accumulated depreciation

($300,000 / 10 years) x 4 years (120,000) (180,000)

Gain on sale of truck $ 30,000


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E7-8 (continued)

b.

Truck


Minnow Corp.

210,000

Actual

35,000

90,000

5,000

120,000

Frazer Corp.

300,000

"As If"

150,000

Eliminate the gain on Truck & correct asset's basis: Investment in Minnow Corp.

30,000

Truck

90,000


120,000


5,000


5,000

E7-9 Transfer of Depreciable Asset at Beginning of Year

a.

Truck


Minnow Corp.

245,000

Actual

35,000

55,000

5,000

90,000

Frazer Corp.

300,000

"As If"

120,000


Gain on Sale

35,000

Truck

55,000


90,000


5,000


5,000

Computation of gain on sale of truck:

Price paid by Minnow $245,000

Cost of truck to Frazer $300,000

Accumulated depreciation

($300,000 / 10 years) x 3 years ( 90,000) (210,000)

Gain on sale of truck $ 35,000


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E7-9 (continued) b.

Truck


Minnow Corp.

245,000

Actual

70,000

55,000

5,000

85,000

Frazer Corp.

300,000

"As If"

150,000


Investment in Minnow Corp.

30,000

Truck

55,000


85,000


5,000


5,000

E7-10 Sale of Equipment to Subsidiary in Current Period

a. Cash

84,000


80,000

Equipment

150,000

Gain on sale of Equipment

14,000

Record gain on Equipment

b.

Equipment 84,000

Cash

84,000

Journal entry to record purchase



12,000

Journal entry to record depreciation expense


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E7-10 (continued) c.

Equipment


Lance Corp.

84,000

Actual

12,000

66,000

2,000

80,000

Wainwrite Corp.

150,000

"As If"

90,000

Eliminate the gain on Equipment & correct asset's basis: Gain on sale

14,000

Equipment

66,000


80,000


2,000


2,000

d. Eliminating entry at January 1, 20X8, to eliminate intercompany sale of equipment and prepare a consolidated balance sheet only:

Eliminate the gain on Equipment & correct asset's basis: Investment in Lance Corp.

12,000

Equipment

66,000


78,000

E7-11 Upstream Sale of Equipment in Prior Period

a. Consolidated net income for 20X8:

Operating income reported by Baywatch

$100,000

Net income reported by Tubberware $40,000

Amount of gain realized in 20X8

($30,000 / 12 years) 2,500

Realized net income of Tubberware

42,500

Consolidated net income

$142,500

b. Consolidated net income for 20X8 would be unchanged.


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E7-11 (continued) c.

Equipment


Baywatch

270,000

Actual

67,500

30,000

2,500

55,000

Tubberware

300,000

"As If"

120,000

Eliminate the gain on Equipment & correct asset's basis: Investment in Tubberware

20,000

NCI in NA of Tubberware

5,000

Equipment

30,000


55,000


2,500


2,500

E7-12 Elimination Entries for Midyear Depreciable Asset Transfer a.

Equipment


Andrews Co.

28,000

Actual

4,000

2,000

1,500

12,500

Kline Corp.

30,000

"As If"

15,000

Eliminate the gain on Equipment & correct asset's basis: Investment in Andrews Co.

10,500

Equipment

2,000


12,500


1,500


1,500

b.

Equipment


Andrews Co.

28,000

Actual

12,000

2,000

3,000

11,000

Kline Corp.

30,000

"As If"

20,000

Eliminate the gain on Equipment & correct asset's basis: Investment in Andrews Co.

9,000

Equipment

2,000


11,000


3,000


3,000


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E7-13 Consolidated Net Income Computation

a. Downstream sale of land:

20X4

20X5

Verry’s separate operating income

$ 90,000

$110,000

Less: Unrealized gain on sale of land (25,000)

Verry’s realized operating income $ 65,000

$110,000

Spawn’s realized net income 60,000

40,000


$150,000

Income to noncontrolling interest:

($60,000 x 0.25) (15,000)

($40,000 X 0.25)

(10,000)

Income to controlling interest $110,000

$140,000

b. Upstream sale of land:

20X4

20X5

Verry’s separate operating income $ 90,000

$110,000

Spawn’s net income $60,000

Less: Unrealized gain on sale of land (25,000)

Spawn’s realized net income 35,000

40,000


$150,000

Income to noncontrolling interest:

($35,000 x 0.25) (8,750)

($40,000 x 0.25)

(10,000)

Income to controlling interest $116,250

$140,000

E7-14 Elimination Entries for Intercompany Transfers

a. Operating income of Grand Delivery

$65,000

Net income of Acme Real Estate Company $40,000

Less: Unrealized profit on land sale (25,000)

Acme’s realized net income

15,000


$80,000

b. Note: the term “basic” equity method in part b of the problem slipped through the editorial process. This should have read “fully adjusted” equity method. The answers given here are based on the fully adjusted equity method.

Journal entries recorded by Speedy Delivery:

Cash 8,000

Investment in Acme Real Estate

8,000

Record dividends from Acme Real Estate: $10,000 x 0.80

Investment in Acme Real Estate 32,000

Income from Acme Real Estate

32,000

Record equity-method income: $40,000 x 0.80

Income from Acme Real Estate 20,000


20,000

Eliminate unrealized gain on sale


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E7-14 (continued) c. Book Value Calculations:

NCI 20%

+

Grand

Delivery 80%

=

Common

Stock

+ Retained

Earnings

Original book value

80,000

320,000

300,000 100,000

+ Net Income 8,000

32,000

40,000

- Dividends (2,000)

(8,000)

(10,000)

Ending book value 86,000

344,000

300,000 130,000

Deferred Gain Calculations:

Total

=

Grand Delivery's

share

+

NCI's share

Upstream Land 25,000

20,000

5,000

Total 25,000

20,000

5,000

Basic elimination entry

Common stock

300,000

Original amount invested (100%)

Retained earnings

100,000

Beginning balance in retained earnings

Income from Acme Real Estate

12,000

Grand’s share of NI - Def. Gain

NCI in NI of Acme Real Estate

3,000

NCI share of NI - Def. Gain

Dividends declared

10,000

100% of Acme’s dividends declared


324,000

Grand’s share of BV - Def. Gain

NCI in NA of Acme Real Estate

81,000

NCI share of BV - Def. Gain

Eliminate gain on purchase of land

Gain on sale of land

25,000

Land

25,000

Eliminate courier services

Service Revenue

15,000

Delivery Expense

15,000


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E7-15 Sale of Building to Parent in Prior Period

a. Turner will record annual depreciation expense of $25,000 ($300,000 / 12 years).

b. Split would have recorded annual depreciation expense of $20,000 ($400,000 / 20 years).

c.

Building


Turner Co.

300,000

Actual

25,000

100,000

5,000

160,000

Split Co.

400,000

"As If"

180,000

Eliminate the gain on building and correct asset's basis:

Investment in Split Co.

42,000

NCI in NA of Split Co.

18,000

Building

100,000


160,000


5,000


5,000

d. Income assigned to noncontrolling interest for 20X9:

Net income reported by Split Company $ 40,000

Amount of gain realized in 20X9 ($60,000 / 12 years) 5,000

Realized net income for 20X9 $ 45,000

Proportion of ownership held by noncontrolling

interest x 0.30

Income assigned to noncontrolling interest $ 13,500

e. Amount assigned to noncontrolling interest in 20X9 consolidated balance sheet:

Split Company net assets, January 1, 20X9

($350,000 - $150,000) $200,000

Net income for 20X9 40,000

Dividends paid in 20X9 (15,000)

Unrealized profit on sale of building to Turner Company

($60,000 - $5,000) (55,000)

Realized book value December 31, 20X9 $170,000


interest x 0.30

Amount assigned to noncontrolling interest in

December 31, 20X9, consolidated balance sheet $ 51,000


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E7-16 Intercompany Sale at a Loss

a. Consolidated net income for 20X8 will be greater than Parent Company's income from operations plus Sunway's reported net income. The eliminating entries at December 31, 20X8, will result in an increase of $16,000 to consolidated net income.

b. As a result of purchasing the equipment at less than Parent's book value, depreciation expense reported by Sunway will be $2,000 ($16,000 / 8 years) below the amount that would have been recorded by Parent. Thus, depreciation expense must be increased by $2,000 when eliminating entries are prepared at December 31, 20X9. Consolidated net income will be decreased by the full amount of the $2,000 increase in depreciation expense.

E7-17 Eliminating Entries Following Intercompany Sale at a Loss


Buildings and Equipment 156,000

Loss on Sale of Building

36,000


120,000

Eliminate unrealized loss on building.

b. Consolidated net income and income to controlling interest for 20X7:

Operating income reported by Brown

$125,000

Net income reported by Transom $ 15,000

Add: Loss on sale of building 36,000

Realized net income of Transom

51,000


$176,000

Income to noncontrolling interest ($51,000 x 0.30)

(15,300)

Income to controlling interest

$160,700

c.

Eliminate the gain on Building and correct asset's basis:

Building

156,000

Investment in Transom Co.

25,200

NCI in NA of Transom Co.

10,800


120,000


4,000


4,000

Building


Brown Corp.

144,000

Actual

16,000

156,000

120,000

4,000


7-19

Transom Co.

300,000

"As If"

140,000

E7-17 (continued)

d. Consolidated net income and income assigned to controlling interest in 20X8: Operating income reported by Brown

$150,000

Net income reported by Transom $40,000

Adjustment for loss on sale of building (4,000)

Realized net income of Transom

36,000


$186,000

Income assigned to noncontrolling interest ($36,000 x 0.30)

(10,800)

Income assigned to controlling interest

$175,200

E7-18 Multiple Transfers of Asset

a. $145,000

b. No gain or loss should be reported.

c. Swanson Corporation operating income

$150,000

Sullivan Corporation net income $120,000

Loss on sale of land ($145,000 - $130,000) 15,000

Realized net income of Sullivan Corporation $135,000

Proportion of stock held by Swanson x 0.80

108,000

Kolder Company net income $ 60,000

Gain on sale of land ($180,000 - $130,000) (50,000)

Realized net income of Kolder Company $ 10,000


7,000

Clayton Corporation net income $ 80,000

Gain on sale of land ($240,000 - $180,000) (60,000)

Realized net income of Clayton Corporation $ 20,000


18,000


$283,000

Alternate Computation:

Swanson Corporation operating income

$150,000

Sullivan Corporation net income

120,000

Kolder Company net income

60,000

Clayton Corporation net income

80,000

Combined income

$410,000

Unrealized loss recorded by Sullivan Corp. $ (15,000)

Unrealized gain recorded by Kolder Company 50,000

Unrealized gain recorded by Clayton Corp. 60,000

(95,000)

Realized income available to all shareholders

$315,000

Income assigned to noncontrolling interest:

Sullivan Corp. ($120,000 + $15,000) x 0.20 $ 27,000


7-20

Kolder Company ($60,000 - $50,000) x 0.30 3,000

Clayton Corp. ($80,000 - $60,000) x 0.10 2,000

(32,000)


$283,000

E7-18 (continued)

d. Eliminating entry:


Loss on Sale of Land

15,000

Land

95,000

Eliminate gains and loss on land transfer:

$110,000 = $50,000 + $60,000

$95,000 = $110,000 - $15,000

E7-19 Elimination Entry in Period of Transfer

a. $300,000 = $276,000 + $24,000

b. 15 years = $300,000 / ($60,000 / 3 years)

c.

Truck


Blank Corp.

276,000

Actual

23,000

24,000

3,000

60,000

Grand Corp.

300,000

"As If"

80,000

Eliminate the gain on Truck and correct asset's basis:

Investment in Grand Corp.

21,600

NCI in NA of Grand Corp.

14,400

Truck

24,000


60,000


3,000


3,000


7-21

E7-20 Elimination Entry Computation

a.

Equipment


Stern

360,000

Actual

36,000

90,000

6,000

150,000

Subsidiary

450,000

"As If"

180,000

Eliminate the gain on Equipment and correct asset's basis:

Gain on sale

60,000

Equipment

90,000


150,000


6,000


6,000

b.

Equipment


Stern

360,000

Actual

72,000

90,000

6,000

144,000

Subsidiary

450,000

"As If"

210,000


Investment in Subsidiary

37,800

NCI in NA of Subsidiary

16,200

Equipment

90,000


144,000


6,000


6,000


7-22

E7-21 Using the Eliminating Entry to Determine Account Balances

a. Pastel owns 90 percent ($9,450 / ($9,450 + $1,050) of the stock of Somber Corporation.

b. The subsidiary was the owner. The sale was from the subsidiary to the parent, as evidenced by the debit to noncontrolling interest in the eliminating entry.

c. Intercompany transfer price:

Amount paid by Somber Corporation

$120,000

Increase to buildings and equipment in eliminating entry

(53,500)

Amount paid by Pastel to Somber for equipment

$ 66,500

d. Income assigned to noncontrolling interest for 20X9:

Net income reported by Somber

$ 25,000

Amount of gain realized in 20X9 ($10,500 / 7 years)

1,500

Realized net income for 20X9

$ 26,500


interest

x 0.10

Income assigned to noncontrolling interest

$ 2,650

e. Total depreciation expense of $22,500 ($15,000 + $9,000 - $1,500) will be reported by the consolidated entity for 20X9.

f. Eliminating entries at December 31, 20X9:

Book Value Calculations:

NCI 10%

+

Pastel Corp. 90%

=

Common

Stock + Retained

Earnings

Original book value

50,000

450,000

300,000

200,000

+ Net Income 2,500

22,500

25,000

- Dividends (600)

(5,400)

(6,000)


467,100

300,000

219,000


Total =

Pastel Corp.'s share +

NCI's share

Extra Depreciation 1,500

1,350

150

Basic elimination entry Common stock

300,000

Original amount invested (100%) Retained earnings

200,000

Beginning balance in RE Income from Somber Corp.

23,850

Pastel’s share of NI + Extra Dep. NCI in NI of Somber Corp.

2,650

NCI share of NI + Extra Dep. Dividends declared

6,000

100% of Somber's dividends Investment in Somber Corp.

468,450

Pastel 's share of BV + Extra Dep. NCI in NA of Somber Corp.

52,050

NCI share of BV + Extra Dep.


7-23

E7-21 (continued)

Equipment


Pastel Corp.

66,500

Actual

9,500

53,500

1,500

64,000

Somber Corp.

120,000

"As If"

72,000

Eliminate the gain on Equipment and correct asset's basis: Investment in Somber Corp.

9,450

NCI in NA of Somber Corp.

1,050

Equipment

53,500


64,000


1,500


1,500

E7-22 Intercompany Sale of Services

a. Eliminating entries, 20X4:

Consulting Revenue 138,700

Consulting Fees Expense

138,700

Eliminate intercompany revenue and expense.

Accounts Payable 6,600

Accounts Receivable

6,600

Eliminate intercompany receivable/payable.

b. Consolidated net income and income to controlling interest for 20X4:

Norgaard's separate operating income

$2,342,000

Bline's net income

631,000


2,973,000

Income to noncontrolling interest ($631,000 x 0.25) (157,750)


$2,815,250


7-24

E7-23A Modified Equity Method and Cost Method

a.

(1) Equity Method Entries on Newtime's Books:

Investment in TV Sales Co.

45,500

Income from TV Sales Co.

45,500

Record Newtime's 65% share of TV Sales Co.'s 20X4 income

Cash

13,000

Investment in TV Sales Co. 13,000

Record Newtime's 65% share of TV Sales Co.'s 20X4 dividend

(2) Book Value Calculations:

NCI 35%

+

Newtime 65%

=

Common

Stock + Retained

Earnings

Original book value 155,750

289,250

300,000

145,000

+ Net Income 24,500

45,500

70,000

- Dividends (7,000)

(13,000)

(20,000)


321,750

300,000

195,000

Basic elimination entry

Common stock

300,000


Retained earnings

145,000

Beginning balance in RE

Income from TV Sales Co.

45,500

Newtime’s share of NI

NCI in NI of TV Sales Co.

27,300

NCI share of NI + Extra Dep.

Dividends declared

20,000

100% of TV Sales Co.'s dividends


321,750

Newtime's share of BV

NCI in NA of TV Sales Co.

176,050




11,000

Land

11,000



26,000


14,000

Equipment

40,000


8,000


8,000


7-25

E7-23A (continued)

b.

(1)

Equity Method Entries on Newtime's Books:

Cash 13,000

Dividend Income

13,000

Record dividend income from TV Sales Company.

(2) Investment elimination entry

Common stock

300,000

Retained earnings

100,000


260,000


140,000

Dividend elimination entry

Dividend Income

13,000


7,000

Dividends declared

20,000

Assign prior undistributed income to NCI


20,300

Retained Earnings

15,750


36,050



11,000

Land

11,000



26,000


14,000

Equipment

40,000


8,000


8,000


7-26

SOLUTIONS TO PROBLEMS

P7-24 Computation of Consolidated Net Income

a. Separate operating income of Petime Corporation

$34,000

Reported net income of United Grain Company $19,000

Unrealized profit of sale of land (7,000)

Realized income for 20X4 $12,000

Amortization of differential ($10,000 / 10 years) ( 1,000)

$11,000

Proportion of ownership held by Petime x 0.90

Income attributable to controlling interest

9,900


$43,900

b. Separate operating income of Petime Corporation

$34,000

Reported net income by United Grain Company $19,000

Amortization of differential ($10,000 / 10 years) ( 1,000)

$18,000

Proportion of stock held by Petime x 0.90

Income attributable to controlling interest

16,200

Unrealized profit on sale of land

(7,000)


$43,200

Reported income will decrease by $700. In the upstream case the unrealized profit ($7,000) is apportioned to both majority ($6,300) and noncontrolling ($700) shareholders. In the downstream case, it is apportioned entirely to the majority shareholders ($7,000).

P7-25 Subsidiary Net Income

a. Toll Corporation’s reported net income for 20X4 was $94,400: Income assigned to noncontrolling shareholders

$17,500

Add: Unrealized profit on building ($20,000 x 0.25) 5,000

Amortization of differential ($4,400 x 0.25)

1,100

Income assigned to noncontrolling interest before adjustment

$23,600

Proportion of stock held by noncontrolling interest

÷ 0.25

Reported income of Toll $94,400

Computation of annual amortization:

Fair value of consideration given by Bold

$348,000

Fair value of noncontrolling interest

116,000

Total fair value

$464,000

Book value of Toll’s assets:

Common stock $150,000

Retained earnings 270,000

Total book value

(420,000)

Differential paid by Bold

$ 44,000

Number of years in amortization period

÷ 10

Annual amortization

$4,400


7-27

P7-25 (continued)

b. Consolidated net income for 20X4 is $304,000:

Bold Corporation’s operating income

$234,000

Toll Corporation’s net income

94,400

Amortization of differential ($44,000 / 10 years)

(4,400)

Unrealized profit on building

(20,000)


$304,000

c. Income assigned to controlling interest is $286,500:


$304,000


(17,500)


$286,500

Alternate computation:

Operating income of Bold

$234,000

Income from Toll:

Net income of Toll $94,400

Unrealized profit on building (20,000)

Amortization of differential (4,400)

Realized income $70,000

Portion of ownership held x 0.75

52,500


$286,500

P7-26 Transfer of Asset from One Subsidiary to Another

Bugle Cook Products Consolidated Corporation

Corporation

Entity

Depreciation expense $ --- $ 3,000 $ 2,000

Fixed assets — Warehouse --- 45,000 40,000

Accumulated depreciation --- 3,000 12,000

Gain on sale of warehouse 15,000 --- ---


7-28

P7-27 Consolidated Eliminating Entry

a. Master paid Rakel $460,000 ($600,000 - $140,000).

b. Accumulated depreciation at January 1, 20X7, was $168,000, computed as follows:

Purchase price paid by Rakel

$600,000

Amount paid by Master $460,000

Gain recorded by Rakel (28,000)

Book value at date of sale

(432,000)

Accumulated depreciation at date of sale

$168,000

c. Annual depreciation expense recorded by Rakel was $28,000 ($168,000/6 years).

d. The estimated residual value was $40,000, computed as follows:

Purchase price paid by Rakel

$600,000

Amount to be depreciated by Rakel ($28,000 x 20 years) (560,000)

Estimated residual value

$ 40,000

e. Master Corporation recorded depreciation expense of $30,000 in 20X7 [($460,000 - $40,000) / 14 years).

f. Reported net income of Rakel

$ 80,000

Unrealized gain on sale of building ($28,000 - $2,000) (26,000)

$ 54,000

Proportion of stock held by noncontrolling interest x 0.40


$ 21,600

g. Reported net income of Rakel

$ 65,000

Portion of gain on sale of building realized in 20X8 2,000

$ 67,000

Proportion of stock held by noncontrolling interest x 0.40


$ 26,800


7-29

P7-28 Multiple-Choice Questions

1. d

2. c

3. a

4. a

5. d

P7-29 Intercompany Services Provided to Subsidiary

The eliminating entry at December 31, 20X4, would be:

Service Revenue 110,000

Building

30,000

Wage Expense

80,000

The eliminating entries at December 31, 20X5, would be:

Investment in Subsidiary 30,000

Building

30,000

Accumulated Depreciation 1,200


1,200

P7-30 Consolidated Net Income with Intercorporate Transfers

a. Cash

240,000


Equipment 350,000

Gain on sale of Equipment

30,000

Record gain on Equipment

b. Eliminate loss on purchase of land Land

60,000

Loss on sale of land

60,000

Eliminate the gain on Equipment and correct asset's basis: Investment in Subsidence

25,000

Equipment

110,000


135,000


5,000


5,000


7-30

P7-30 (continued)

c. Subsidence Mining's 20X7 net income was $90,000:

Subsidence Mining's income to noncontrolling

shareholders

$ 39,000

Noncontrolling interest's share of subsidiary income

÷ 0.30

Subsidence Mining's income before adjustment

$130,000

Add: Amortization of differential:

($200,000 / 10 years)

20,000

Less: Unrealized loss on intercompany sale of land

(60,000)

Subsidence Mining's 20X7 net income

$ 90,000

d. Bower’s operating income was $826,000:


$961,000

Less: Income to noncontrolling interest

(39,000)


$922,000

Income from Subsidence Mining:

Reported net income $ 90,000

Unrealized loss on land 60,000

Amortization of differential ($200,000 / 10 years) (20,000)

Realized income $130,000

Portion of ownership held x 0.70

Bower’s share $ 91,000

Realized profit on equipment ($30,000 / 6 years) 5,000

(96,000)

Bower’s 20X7 income from its separate operations

$826,000


7-31

P7-31 Preparation of Consolidated Balance Sheet

a. Book Value Calculations:

NCI 40%

+ Lofton Co.

60%

=

Common

Stock

+ Retained

Earnings


150,000

200,000

50,000


Total

=

Lofton Co.'s share

+

NCI's share


3,000

0

Total 3,000

3,000

0


200,000


50,000

Beginning balance in RE Income from Temple Corp.

3,000

Lofton’s share of NI + Extra Dep. Investment in Temple Corp.

153,000

Lofton's share of BV + Extra Dep. NCI in NA of Temple Corp.

100,000

NCI share of BV of net assets

Eliminate gain on purchase of land Land

10,000

Investment in Temple Corp.

6,000

NCI in NA of Temple Corp.

4,000

Equipment


Temple Corp.

91,000

Actual

26,000

9,000

3,000

27,000

Lofton Co.

100,000

"As If"

50,000

Eliminate the gain on Equipment and correct asset's basis: Investment in Temple Corp.

18,000

Equipment

9,000


27,000


3,000


3,000


7-32

P7-31 (continued)

Elimination Entries

Lofton

Co.

Temple Corp.

DR

CR

Consolidated

Balance Sheet

Cash and Receivables

101,000

20,000

121,000

Inventory

80,000

40,000

120,000

Land

150,000

90,000

10,000

250,000

Buildings & Equipment

400,000

300,000

9,000

709,000

Less: Accumulated Depr.

(135,000)

(85,000)

3,000

27,000

(244,000)

Investment in Temple Corp.

141,000

18,000

153,000

0

6,000

Total Assets

737,000

365,000

40,000

186,000

956,000

Accounts Payable

90,000

25,000

115,000

Notes Payable

200,000

90,000

290,000

Common Stock

100,000

200,000

200,000

100,000

Retained Earnings

347,000

50,000

50,000

3,000

347,000

3,000

NCI in NA of Temple Corp.

100,000

104,000

4,000

Total Liabilities & Equity

737,000

365,000

253,000

107,000

956,000

b.

Lofton Company and Subsidiary Consolidated Balance Sheet

December 31, 20X6

Cash and Accounts Receivable

$121,000

Inventory

120,000

Land

250,000

Buildings and Equipment $709,000

Less: Accumulated Depreciation (244,000)

465,000

Total Assets

$956,000

Accounts Payable

$115,000

Notes Payable

290,000

Stockholders’ Equity:

Controlling Interest:

Common Stock $100,000

Retained Earnings 347,000

Total Controlling Interest $447,000

Noncontrolling interest 104,000

Total Stockholders’ Equity

551,000

Total Liabilities and Stockholders' Equity

$956,000


7-33

P7-32 Consolidation Worksheet in Year of Intercompany Transfer

Note: In converting this problem from the modified to the fully adjusted equity method, we failed to deduct the $8,000 deferred gain from the land sale in 2005 from the beginning balance of the investment and retained earnings accounts. If you complete the problem based on the numbers given in the trial balance in the text, the investment account will not be fully eliminated. In order to correct this problem, please reduce the Investment in Lane Company Stock and Retained Earnings of Prime Company by 8,000. Adjusted balances in the trial balance:

Investment in Lane Company Stock = 191,600 Retained Earnings = 322,000

a. These calculations are based on the corrected numbers

Equity Method Entries on Prime Co.'s Books: Investment in Lane Co.

40,000

Income from Lane Co.

40,000 Record Prime Co.'s 80% share of Lane Co.'s 20X6 income

Cash

4,000

Investment in Lane Co. 4,000

Record Prime Co.'s 80% share of Lane Co.'s 20X6 dividend


14,400


Record amortization of excess acquisition price


20,000

Investment in Lane Co.

20,000

Defer unrealized gain on Equipment


2,000


2,000

Reverse the deferred gain


NCI 20%

+ Prime Co.

80% =

Common

Stock + Retained

Earnings


156,000

100,000

95,000

+ Net Income 10,000

40,000

50,000

- Dividends (1,000)

(4,000)

(5,000)


192,000

100,000

140,000


Total =

Prime Co.'s share +

NCI's share

Downstream Asset (20,000)

(20,000)


2,000

0

Total (18,000)

(18,000)

0


7-34

P7-32 (continued)


100,000


Retained earnings

95,000

Beginning balance in RE


22,000

Prime’s share of NI - Def. Gain

NCI in NI of Lane Co.

10,000

NCI share of Lane Co.'s NI Dividends declared

5,000

100% of Lane Co.'s dividends Investment in Lane Co.

174,000

Prime's share of BV - Def. Gain NCI in NA of Lane Co.

48,000


Excess Value (Differential) Calculations: NCI 20% +

Prime Co. 80% =

Goodwill Beginning balance 10,000

40,000

50,000

Changes (3,600)

(14,400)

(18,000)

Ending balance 6,400

25,600

32,000

Amortized excess value reclassification entry: Goodwill impairment loss

18,000


14,400


3,600

Excess value (differential) reclassification entry: Goodwill

32,000


25,600

NCI in NA of Lane Co.

6,400

Eliminate intercompany accounts: Accounts Payable 7,000


7,000

Eliminate gain on purchase of land Investment in Lane Co.

8,000


2,000

Land

10,000

Equipment


Lane Co.

70,000

Actual

7,000

5,000

2,000

25,000

Prime Co.

75,000

"As If"

30,000

Eliminate the gain on Equipment and correct asset's basis: Gain on sale

20,000

Equipment

5,000


25,000


7-35


2,000


2,000

P7-32 (continued)

Investment in Income from

Lane Co.

Lane Co.

Beginning Balance

188,000

80% Net Income

40,000

40,000

80% Net Income

4,000 80% Dividends

14,400 Excess Val. Amort. 14,400

Realize Def. Gain

2,000 20,000 Defer Equipment Gain 20,000

2,000 Realize Def. Gain Ending Balance

191,600

7,600 Ending Balance

174,000

Basic 22,000

Land Adjustment

8,000

25,600

Excess Reclass. 14,400

0

0

b. This worksheet is based on the corrected numbers:

Elimination Entries

Prime Co.

Lane Co.

DR

CR

Consolidated

Income Statement

Sales

240,000

130,000

370,000

Gain on Sale of Equipment

20,000

20,000

0

Less: COGS

(140,000)

(60,000)

(200,000)

Less: Depr. & Amort. Expense (25,000)

(15,000)

2,000

(38,000)

Less: Other Expenses

(15,000)

(5,000)

(20,000)

Less: Goodwill Impairment Loss

18,000

(18,000)


7,600

22,000

14,400

0

Consolidated Net Income

87,600

50,000

60,000

16,400

94,000

NCI in Net Income

10,000

3,600

(6,400)

Controlling Interest in NI

87,600

50,000

70,000

20,000

87,600

Statement of Retained Earnings

Beginning Balance

322,000

95,000

95,000

322,000

Net Income

87,600

50,000

70,000

20,000

87,600

Less: Dividends Declared

(30,000)

(5,000)

5,000

(30,000)

Ending Balance

379,600

140,000

165,000

25,000

379,600

Balance Sheet


113,000

35,000

7,000

141,000

Inventory

260,000

90,000

350,000

Land

80,000

80,000

10,000

150,000


500,000

150,000

5,000

655,000

Less: Accumulated Depreciation

(205,000)

(45,000)

2,000

25,000

(273,000)


191,600

8,000

174,000

0

25,600

Goodwill

32,000

32,000

Total Assets

939,600

310,000

47,000

241,600

1,055,000

Accounts Payable

60,000

20,000

7,000

73,000

Bonds Payable

200,000

50,000

250,000

Common Stock

300,000

100,000

100,000

300,000


7-36

Retained Earnings

379,600

140,000

165,000

25,000

379,600


2,000

48,000

52,400

6,400


939,600

310,000

274,000

79,400

1,055,000

P7-32 (continued)

These financial statements are based on the corrected numbers:

c.

Prime Company and Subsidiary Consolidated Balance Sheet

December 31, 20X6


$ 141,000

Inventory

350,000

Land

150,000



382,000

Goodwill

32,000

Total Assets

$1,055,000

Accounts Payable

$ 73,000

Bonds Payable

250,000






Total Noncontrolling Interest 52,400


732,000


$1,055,000

Prime Company and Subsidiary Consolidated Income Statement Year Ended December 31, 20X6

Sales

$ 370,000

Cost of Goods Sold $200,000

Depreciation and Amortization Expense 38,000

Goodwill Impairment Loss 18,000

Other Expenses 20,000

Total Expenses

(276,000)


$ 94,000

Income to Noncontrolling Interest

(6,400)

Income to Controlling Interest

$ 87,600

Prime Company and Subsidiary Consolidated Retained Earnings Statement

Year Ended December 31, 20X6

Retained Earnings, January 1, 20X6

$ 322,000

Income to Controlling Interest, 20X6

87,600


7-37

$ 409,600

Dividends Declared, 20X6

(30,000)

Retained Earnings, December 31, 20X6

$ 379,600

P7-32 (continued)

b. This worksheet is based on the uncorrected numbers:

Elimination Entries

Prime Co.

Lane Co.

DR

CR

Consolidated

Income Statement

Sales

240,000

130,000

370,000

Gain on Sale of Equipment

20,000

20,000

0

Less: COGS

(140,000)

(60,000)

(200,000)


(15,000)

2,000

(38,000)


(15,000)

(5,000)

(20,000)

Less: Goodwill Impairment Loss

18,000

(18,000)


7,600

22,000

14,400

0


87,600

50,000

60,000

16,400

94,000

NCI in Net Income

10,000

3,600

(6,400)


87,600

50,000

70,000

20,000

87,600


Beginning Balance

330,000

95,000

95,000

330,000

Net Income

87,600

50,000

70,000

20,000

87,600


(30,000)

(5,000)

5,000

(30,000)

Ending Balance

387,600

140,000

165,000

25,000

387,600

Balance Sheet


113,000

35,000

7,000

141,000

Inventory

260,000

90,000

350,000

Land

80,000

80,000

10,000

150,000


500,000

150,000

5,000

655,000

Less: Accumulated Depreciation

(205,000)

(45,000)

2,000

25,000

(273,000)


199,600

8,000

174,000

8,000

25,600

Goodwill

32,000

32,000

Total Assets

947,600

310,000

47,000

241,600

1,063,000

Accounts Payable

60,000

20,000

7,000

73,000

Bonds Payable

200,000

50,000

250,000

Common Stock

300,000

100,000

100,000

300,000

Retained Earnings

387,600

140,000

165,000

25,000

387,600


2,000

48,000

52,400

6,400


947,600

310,000

274,000

79,400

1,063,000


7-38

P7-32 (continued)

These financial statements are based on the uncorrected numbers:

c.

Prime Company and Subsidiary

Consolidated Balance Sheet December 31, 20X6


$ 141,000

Inventory

350,000

Land

150,000



382,000


8,000 Goodwill

32,000

Total Assets

$1,063,000

Accounts Payable

$ 73,000

Bonds Payable

250,000






Total Noncontrolling Interest 52,400


740,000


$1,063,000

Prime Company and Subsidiary Consolidated Income Statement Year Ended December 31, 20X6

Sales

$ 370,000


Depreciation and Amortization Expense 38,000

Goodwill Impairment Loss 18,000


Total Expenses

(276,000)


$ 94,000


(6,400)


$ 87,600

Prime Company and Subsidiary Consolidated Retained Earnings Statement



$ 330,000


87,600

$ 417,600


(30,000)


7-39


$ 387,600

P7-33 Consolidation Worksheet in Year following Intercompany Transfer

Note: In converting P7-32 from the modified to the fully adjusted equity method, we failed to deduct the $8,000 deferred gain from the land sale in 2005 from the beginning balance of the investment and retained earnings accounts. This error carries over to this problem. If you complete the problem based on the numbers given in the trial balance in the text, the investment account will not be fully eliminated. In order to correct this problem, please reduce the Investment in Lane Company Stock and Retained Earnings of Prime Company by 8,000. Adjusted balances in the trial balance:


These calculations are based on the corrected numbers:

a. Reconciliation of underlying book value and balance in investment account:

Net book value reported by Lane Company

Common stock outstanding

$100,000

Retained earnings balance, January 1, 20X7 $140,000



Retained earnings balance, December 31, 20X7

150,000

$250,000

Proportion of stock held by Prime Company

x .80

$200,000

Minus: Upstream Land Gain (10,000 x 0.80)

(8,000)

Minus: Downstream Equipment Transfer Gain

(20,000)

Add: Reversal of deferred gross profit 20X6

2,000

Minus: Reversal of deferred gross profit 20X7

2,000

Add: Goodwill (32,000 x 0.80)

25,600

Balance in investment account

$201,600

These calculations are based on the uncorrected numbers

a. Reconciliation of underlying book value and balance in investment account:

Net book value reported by Lane Company


$100,000

Retained earnings balance, January 1, 20X7 $140,000



Retained earnings balance, December 31, 20X7

150,000

$250,000

Proportion of stock held by Prime Company

x .80

$200,000

Minus: Upstream Land Gain (10,000 x 0.80)

(8,000)

Minus: Downstream Equipment Transfer Gain

(20,000)

Add: Reversal of deferred gross profit 20X6

2,000

Add: Goodwill (32,000 x 0.80)

25,600

Add: Incorrect number

10,000


7-40

Balance in investment account

$209,600

P7-33 (continued)

b. These calculations are based on the corrected numbers


36,000


36,000

Record Prime Co.'s 80% share of Lane Co.'s 20X6 income

Cash

28,000




2,000


2,000

Reverse the deferred gain


NCI 20% + Prime Co.

80% =

Common

Stock + Retained

Earnings


192,000

100,000

140,000

+ Net Income 9,000

36,000

45,000

- Dividends (7,000)

(28,000)

(35,000)


200,000

100,000

150,000


Total =

Prime Co.'s share +

NCI's share Extra Depreciation 2,000

2,000

0

Total 2,000

2,000

0


100,000


140,000

Beginning balance in RE Income from Lane Co.

38,000

Prime’s share of NI + Extra Dep. NCI in NI of Lane Co.

9,000

NCI share of Lane Co.'s NI Dividends declared

35,000

100% of Lane Co.'s dividends Investment in Lane Co.

202,000

Prime's share of BV + Extra Dep. NCI in NA of Lane Co.

50,000


Excess Value (Differential) Calculations: NCI 20% +

Prime Co. 80% =

Goodwill Beginning balance 6,400

25,600

32,000

Changes 0

0

0


25,600

32,000

Excess value (differential) reclassification entry:


7-41

Goodwill

32,000


25,600


6,400

P7-33 (continued)

Eliminate gain on purchase of land Investment in Lane Co.

8,000


2,000

Land

10,000

Equipment


Lane Co.

70,000

Actual

14,000

5,000

2,000

23,000

Prime Co.

75,000

"As If"

35,000

Eliminate the gain on Equipment and correct asset's basis: Investment in Lane Co.

18,000

Equipment

5,000


23,000


2,000


2,000


Lane Co.

Lane Co.

Beginning Balance

191,600

80% Net Income

36,000

36,000

80% Net Income

28,000

80% Dividends

Realize Def. Gain

2,000

2,000

Realize Def. Gain Ending Balance

201,600

38,000

Ending Balance

202,000

Basic

38,000

Land Adjustment

8,000

25,600

Excess Reclass.

18,000

0

0

Eliminate Intercompany receivable/payable Accounts Payable

4,000

Accounts Receivable

4,000


7-42

P7-33 (continued)


Elimination Entries

Prime

Co.

Lane Co.

DR

CR

Consolidated

Income Statement

Sales

250,000

150,000

400,000

Less: COGS

(160,000)

(80,000)

(240,000)


(15,000)

2,000

(38,000)


(20,000)

(10,000)

(30,000)


38,000

38,000

0


83,000

45,000

38,000

2,000

92,000

NCI in Net Income

9,000

(9,000)


83,000

45,000

47,000

2,000

83,000


Beginning Balance

379,600

140,000

140,000

379,600

Net Income

83,000

45,000

47,000

2,000

83,000


(60,000)

(35,000)

35,000

(60,000)

Ending Balance

402,600

150,000

187,000

37,000

402,600

Balance Sheet


151,000

55,000

4,000

202,000

Inventory

240,000

100,000

340,000

Land

100,000

80,000

10,000

170,000


500,000

150,000

5,000

655,000


(230,000)

(60,000)

2,000

23,000

(311,000)


201,600

8,000

202,000

0

18,000

25,600

Goodwill

32,000

32,000

Total Assets

962,600

325,000

65,000

264,600

1,088,000

Accounts Payable

60,000

25,000

4,000

81,000

Bonds Payable

200,000

50,000

250,000

Common Stock

300,000

100,000

100,000

300,000

Retained Earnings

402,600

150,000

187,000

37,000

402,600


2,000

50,000

54,400

6,400


962,600

325,000

293,000

93,400

1,088,000


7-43

P7-33 (continued)


Elimination Entries

Prime

Co.

Lane Co.

DR

CR

Consolidated

Income Statement

Sales

250,000

150,000

400,000

Less: COGS

(160,000)

(80,000)

(240,000)

Less: Depreciation & Amort. Exp. (25,000)

(15,000)

2,000

(38,000)


(20,000)

(10,000)

(30,000)


38,000

38,000

0


83,000

45,000

38,000

2,000

92,000

NCI in Net Income

9,000

(9,000)


83,000

45,000

47,000

2,000

83,000


Beginning Balance

387,600

140,000

140,000

387,600

Net Income

83,000

45,000

47,000

2,000

83,000


(60,000)

(35,000)

35,000

(60,000)

Ending Balance

410,600

150,000

187,000

37,000

410,600

Balance Sheet


151,000

55,000

4,000

202,000

Inventory

240,000

100,000

340,000

Land

100,000

80,000

10,000

170,000


500,000

150,000

5,000

655,000


(230,000)

(60,000)

2,000

23,000

(311,000)


209,600

8,000

202,000

8,000

18,000

25,600

Goodwill

32,000

32,000

Total Assets

970,600

325,000

65,000

264,600

1,096,000

Accounts Payable

60,000

25,000

4,000

81,000

Bonds Payable

200,000

50,000

250,000

Common Stock

300,000

100,000

100,000

300,000

Retained Earnings

410,600

150,000

187,000

37,000

410,600


2,000

50,000

54,400

6,400


970,600

325,000

293,000

93,400

1,096,000


7-44

P7-34 Intercorporate Sales in Prior Years

a. Equity Method Entries on Pond Corp.'s Books: Investment in Skate Co.

24,000

Income from Skate Co.

24,000

Record Pond Corp.'s 80% share of Skate Co.'s 20X8 income

Cash

8,000

Investment in Skate Co. 8,000

Record Pond Corp.'s 80% share of Skate Co.'s 20X8 dividend


3,000

Investment in Skate Co. 3,000

Record amortization of excess acquisition price

Investment in Skate Co.

1,500


1,500

Reverse a portion of the deferred gain


NCI 20%

+

Pond Corp. 80%

=

Common

Stock + Add Paid-

in Capital +

Retained

Earnings Original book value

40,000

160,000

20,000

30,000

150,000

+ Net Income 6,000

24,000

30,000

- Dividends (2,000)

(8,000)

(10,000)


176,000

20,000

30,000

170,000


Total

=

Pond Corp.'s share

+

NCI's share


1,500

0

Total 1,500

1,500

0


20,000

Original amount invested (100%) Additional Paid-in Capital

30,000

Beginning balance in APIC Retained earnings

150,000

Beginning balance in RE Income from Skate Co.

25,500

Pond’s share of NI + Extra Dep. NCI in NI of Skate Co.

6,000

NCI share of Skate Co.'s NI Dividends declared

10,000

100% of Skate’s dividends declared Investment in Skate Co.

177,500

Pond's share of BV + Extra Dep. NCI in NA of Skate Co.

44,000



7-45

P7-34 (continued)

Excess Value (Differential) Calculations:

NCI 20%

+

Pond Corp. 80%

=

Patent +


+

Acc. Depr.

Beginning balance 12,750

51,000

42,500

25,000

(3,750)

Changes (750)

(3,000) (2,500)

(1,250)


48,000

40,000

25,000

(5,000)

Amortized excess value reclassification entry: Amortization Expense

2,500

Depreciation expense

1,250


3,000

NCI in NI of Skate Co.

750

Excess value (differential) reclassification entry:

Patent

40,000 Buildings & Equipment

25,000

Acc. Depr.

5,000 Investment in Skate Co.

48,000 NCI in NA of Skate Co.

12,000



10,400

NCI in NI of Skate Co.

2,600

Land

13,000

Building


Skate Co. 65,000

Actual

6,500

60,000

1,500 75,000 Pond Corp. 125,000

"As If" 80,000

Eliminate the gain on Building and correct asset's basis: Investment in Skate Co.

15,000

Building

60,000


75,000


1,500


1,500


7-46

P7-34 (continued) Investment in Income from

Skate Co.

Skate Co.

Beginning Balance

185,600

80% Net Income

24,000

24,000 80% Net Income

8,000 80% Dividends

3,000

Excess Val. Amort. 3,000

Realize Def. Gain

1,500 1,500 Realize Def. Gain

Ending Balance

200,100

22,500 Ending Balance

177,500

Basic 25,500

Land Adjustment

10,400

48,000

Excess Reclass. 3,000

15,000

0

0


7-47

P7-34 (continued) b.

Elimination Entries

Pond Corp.

Skate Co.

DR

CR

Consolidated

Income Statement

Sales

450,000

250,000

700,000

Interest Income

14,900

14,900

Less: COGS

(285,000)

(136,000)

(421,000)

Less: Other Operating Exp.

(50,000)

(40,000)

(90,000)

Less: Depreciation Exp.

(35,000)

(24,000)

1,250

1,500

(58,750)

Less: Other Amortization Exp.

2,500

(2,500)

Less: Interest Exp.

(24,000)

(10,500)

(34,500)

Less: Miscellaneous Exp.

(11,900)

(9,500)

(21,400)


22,500

25,500

3,000

0


81,500

30,000

29,250

4,500

86,750

NCI in Net Income

6,000

750

(5,250)


81,500

30,000

35,250

5,250

81,500


Beginning Balance

216,000

150,000

150,000

216,000

Net Income

81,500

30,000

35,250

5,250

81,500


(30,000)

(10,000)

10,000

(30,000)

Ending Balance

267,500

170,000

185,250

15,250

267,500

Balance Sheet

Cash

68,400

47,000

115,400

Accounts Receivable

130,000

65,000

195,000

Interest and Other Receivables

45,000

10,000

55,000

Inventory

140,000

50,000

190,000

Land

50,000

22,000

13,000

59,000


400,000

240,000

60,000

725,000

25,000


(185,000)

(94,000)

1,500

75,000

(357,500)

5,000


200,100

10,400

177,500

0

15,000

48,000

Investment in Tin Co. Bonds

134,000

134,000

Patent

40,000

40,000

Total Assets

982,500

340,000

151,900

318,500

1,155,900

Accounts Payable

65,000

11,000

76,000

Interest and Other Payables

45,000

12,000

57,000

Bonds Payable

300,000

100,000

400,000

Bond Discount

(3,000)

(3,000)

Common Stock

150,000

30,000

30,000

150,000

Additional Paid-in Capital

155,000

20,000

20,000

155,000

Retained Earnings

267,500

170,000

185,250

15,250

267,500

NCI in NA of Skate Co.

2,600

44,000

53,400

12,000


982,500

340,000

237,850

71,250

1,155,900


7-48

P7-35 Intercorporate Sale of Land and Depreciable Asset

a. Income assigned to noncontrolling interest:

Net income of Morris

$ 30,000

Gain on sale of equipment to parent $9,600

Gain realized prior to 20X5 (1,200)

(8,400)

Amortization of differential:

Buildings and equipment ($25,000 / 10 years)

(2,500)

Copyright ($17,000 / 5 years)

(3,400)

Realized income

$15,700

Portion of ownership held

x 0.30

Income to noncontrolling interest

$ 4,710

Gain on sale of equipment to parent:

Sale price to Topp

$91,600

Purchase price $100,000

Accumulated depreciation [($100,000 - $10,000)/10 years] x 2 years

(18,000)

(82,000)

Gain on sale

$ 9,600

b. Reconciliation between book value and investment balance at December 31, 20X5:

Underlying book value of Morris Company stock:


$100,000

Retained earnings, January 1, 20X5

100,000

Net income for 20X5

30,000

Dividends paid in 20X5

( 5,000)

Net book value

$225,000

Portion of ownership held by Topp

x .70

Net book value of ownership held by Topp

$157,500

Unamortized differential:

Buildings and equipment [($25,000 x 7/10 years) x 0.70] 12,250

Copyright [($17,000 x 2/5 years) x 0.70]

4,760

Gain on sale of land

(11,000)

Deferred gross profit on sale of equipment

(6,720)

Realized deferred gain

840

Investment in Morris Company stock

$157,630

b. Book Value Calculations:

NCI 30%

+

Topp Corp. 70%

=

Common

Stock + Retained

Earnings

Original book value

60,000

140,000

100,000

100,000

+ Net Income 9,000

21,000

30,000

- Dividends (1,500)

(3,500)

(5,000)


157,500

100,000

125,000


7-49

P7-35 (continued)


Total

=

Topp

Corp.'s share

+

NCI's share

Upstream Asset (9,600)

(6,720)

(2,880)


840

360

Total (8,400)

(5,880)

(2,520)


100,000


100,000

Beginning balance RE Income from Morris Co.

15,120

Topp’s share of NI - Def. Gain + Extra Depr. NCI in NI of Morris Co.

6,480

NCI share of NI - Def. Gain + Extra Depr. Dividends declared

5,000

100% of Morris Co.'s dividends Investment in Morris Co.

151,620

Topp's share of BV - Def. Gain + Extra Depr. NCI in NA of Morris Co.

64,980

NCI share of BV - Def. Gain + Extra Depr.


NCI 30% +

Topp Corp. 70% =

Buildings & Equipment + Copyright

+

Acc. Depr.

Beginning balance 9,060

21,140

25,000

10,200

(5,000)

Changes (1,770)

(4,130)

(3,400)

(2,500)


17,010

25,000

6,800

(7,500)

Amortized excess value reclassification entry: Amortization Expense

3,400

Depreciation expense

2,500

Income from Morris Co.

4,130

NCI in NI of Morris Co.

1,770

Excess value (differential) reclassification entry: Buildings & Equipment

25,000

Copyright

6,800

Acc. Depr.

7,500

Investment in Morris Co.

17,010

NCI in NA of Morris Co.

7,290

Eliminate gain on purchase of land Investment in Morris Co.

11,000

Land

11,000


7-50

P7-35 (continued)

Equipment


Topp Corp.

91,600

Actual

11,450

8,400

1,200

18,000

Morris Co.

100,000

"As If"

28,250


Gain on sale

9,600

Equipment

8,400


18,000


1,200


1,200


Morris Co.

Morris Co.

Beginning Balance

150,140

70% Net Income

21,000

21,000

70% Net Income

3,500

70% Dividends

4,130

Excess Val. Amort. 4,130

Realize Def. Gain

840

6,720

Defer Asset Gain 6,720

840

Realize Def.Gain Ending Balance

157,630

10,990

Ending Balance

151,620

Basic 15,120

Land Adjustment

11,000

17,010

Excess Reclass.

4,130

0

0


7-51

P7-35 (continued) c.

Elimination Entries

Topp Corp.

Morris

Co.

DR

CR

Consolidated

Income Statement

Sales

450,000

190,400

640,400

Other Income

28,250

28,250

Gain on Sale of Equip.

9,600

9,600

0

Less: COGS

(375,000)

(110,000)

(485,000)


(25,000)

(10,000)

2,500

1,200

(36,300)

Less: Amortization Exp.

3,400

(3,400)

Less: Interest Expense

(24,000)

(33,000)

(57,000)


(28,000)

(17,000)

(45,000)

Income from Morris Co.

10,990

15,120

4,130

0


37,240

30,000

30,620

5,330

41,950

NCI in Net Income

6,480

1,770

(4,710)


37,240

30,000

37,100

7,100

37,240


Beginning Balance

165,240

100,000

100,000

165,240

Net Income

37,240

30,000

37,100

7,100

37,240


(30,000)

(5,000)

5,000

(30,000)

Ending Balance

172,480

125,000

137,100

12,100

172,480

Balance Sheet

Cash

15,850

58,000

73,850

Accounts Receivable

65,000

70,000

135,000

Interest and Other Receivables

30,000

10,000

40,000

Inventory

150,000

180,000

330,000

Land

80,000

60,000

11,000

129,000


315,000

240,000

25,000

588,400

8,400


(120,000)

(60,000)

1,200

7,500

(204,300)

18,000

Investment in Morris Co.

157,630

11,000

151,620

0

17,010

Copyright

6,800

6,800

Total Assets

693,480

558,000

52,400

205,130

1,098,750

Accounts Payable

61,000

28,000

89,000

Other Payables

30,000

20,000

50,000

Bonds Payable

250,000

300,000

550,000

Bond Discount

(15,000)

(15,000)

Common Stock

150,000

100,000

100,000

150,000


30,000

30,000

Retained Earnings

172,480

125,000

137,100

12,100

172,480

NCI in NA of Morris Co.

64,980

72,270

7,290


693,480

558,000

237,100

84,370

1,098,750


7-52

P7-36 Incomplete Data

(a) $100,000

(b) $140,000

(c) $250,000 = $593,000 - $343,000

(d) $100,000 = ($126,000 - $35,000) + [($25,000 + $85,000) - $101,000]

(e) $4,500 = [($106,200 + $70,800) - ($50,000 + $70,000 + $30,000)] / 6 years

(f) Investment in Shadow Company Stock: $106,200

Purchase price, January 1, 20X4 30,000

Undistributed earnings from January 1, 20X4,

to January 1, 20X7 [($80,000 - $30,000) x 0.60] 6,000

Undistributed income for 20X7 ($10,000 x 0.60) (10,800)

Amortization of differential [($27,000 / 6 years) x 4 years] x 0.60 (5,400)

Mound’s portion of gain on sale of equipment ($9,000 x 0.60) 3,600 2 years of extra depreciation ($3,000 x 0.60)

(7,000)

Gain on sale of land $122,600

Balance in investment account at December 31, 20X7

(g) $7,000 = ($70,000 + $90,000) - $153,000

(h) $-0-

(i) $510,000 = $345,000 + $150,000 + ($60,000 - $45,000)

(j) $278,000 = $180,000 + $80,000 + [($60,000 / 5 years) x 4 years] - [($45,000 / 3 years) x 2 years)

(k) $375,800 (Same as Mound Corporation’s retained earnings balance.)

(l) Income to noncontrolling shareholders: $ 30,000

Shadow's 20X7 net income ($250,000 - $195,000

- $10,000 - $15,000) 3,000

Realized profit on 20X6 sale of equipment to Mound (4,500)

Amortization of differential $ 28,500

Realized net income x 0.40

$ 11,400

Income to noncontrolling shareholders


7-53

P7-37 Intercompany Sale of Equipment at a Loss in Prior Period

Note: In converting this problem from the modified to the fully adjusted equity method, we did not correctly adjust for lower depreciation over the three years since the fixed asset sale at a loss. If you complete the problem based on the numbers given in the trial balance in the text, the investment and income from sub accounts will not be fully eliminated. In order to correct this problem, please use the following adjusted numbers for Foster Company:

Investment in Block Corporation Stock = 229,500 Income from Block Corporation = 51,300 Retained Earnings = 251,200

a. These calculations are based on the corrected numbers


NCI 10%

+ Foster Co.

90% =

Common

Stock + Retained

Earnings


180,000

50,000

150,000

+ Net Income 6,000

54,000

60,000

- Dividends (2,000)

(18,000)

(20,000)


216,000

50,000

190,000


Total

=

Foster Co.'s share

+

NCI's share

Lower Depreciation

(3,000)

(2,700)

(300)

Total

(3,000)

(2,700)

(300)


50,000


150,000

Beginning balance in RE Income from Block Corp.

51,300

Foster’s share of NI + Extra Dep. NCI in NI of Block Corp.

5,700

NCI share of NI + Extra Dep. Dividends declared

20,000

100% of Block Corp.'s dividends Investment in Block Corp.

213,300

Foster's share of BV + Extra Dep. NCI in NA of Block Corp.

23,700


Equipment


Foster Co.

48,000

Actual

18,000

24,000

42,000

3,000

Block Corp.

90,000

"As If"

45,000


7-54

P7-37 (continued)

Eliminate the gain on Equipment and correct asset's basis: Equipment

42,000

Investment in Block Corp.

16,200

NCI in NA of Block Corp.

1,800


24,000


3,000


3,000


Block Corp.

Block Corp.

Beginning Balance

196,200

90% Net Income

54,000

54,000

90% Net Income

18,000

90% Dividends

2,700

Realize Def. Gain 2,700

Ending Balance

229,500

51,300

Ending Balance

213,300

Basic 51,300

16,200

Equipment Adj.

0

0


7-55

P7-37 (continued)


Elimination Entries

Foster

Co.

Block Corp.

DR

CR

Consolidated

Income Statement

Sales

680,000

385,000

1,065,000

Other Income

26,000

15,000

41,000

Less: COGS

(500,000)

(250,000)

(750,000)


(45,000)

(15,000)

3,000

(63,000)


(95,000)

(75,000)

(170,000)

Income from Block Corp.

51,300

51,300

0


117,300

60,000

54,300

0

123,000

NCI in Net Income

5,700

(5,700)


117,300

60,000

60,000

0

117,300


Beginning Balance

251,200

150,000

150,000

251,200

Net Income

117,300

60,000

60,000

0

117,300


(40,000)

(20,000)

20,000

(40,000)

Ending Balance

328,500

190,000

210,000

20,000

328,500

Balance Sheet

Cash

82,000

32,400

114,400

Accounts Receivable

80,000

90,000

170,000

Other Receivables

40,000

10,000

50,000

Inventory

200,000

130,000

330,000

Land

80,000

60,000

140,000


500,000

250,000

42,000

792,000


(155,000)

(75,000)

24,000

(257,000)

3,000


229,500

213,300

0

16,200

Total Assets

1,056,500

497,400

42,000

256,500

1,339,400

Accounts Payable

63,000

35,000

98,000

Other Payables

95,000

20,000

115,000

Bonds Payable

250,000

200,000

450,000

Bond Premium

2,400

2,400

Common Stock

210,000

50,000

50,000

210,000


110,000

110,000

Retained Earnings

328,500

190,000

210,000

20,000

328,500


23,700

25,500

1,800


1,056,500

497,400

260,000

45,500

1,339,400


7-56

P7-37 (continued)


Elimination Entries

Foster

Co.

Block Corp.

DR

CR

Consolidated

Income Statement

Sales

680,000

385,000

1,065,000

Other Income

26,000

15,000

41,000

Less: COGS

(500,000)

(250,000)

(750,000)


(45,000)

(15,000)

3,000

(63,000)


(95,000)

(75,000)

(170,000)

Income from Block Corp.

56,700

51,300

5,400


122,700

60,000

54,300

0

128,400

NCI in Net Income

5,700

(5,700)


122,700

60,000

60,000

0

122,700


Beginning Balance

262,000

150,000

150,000

262,000

Net Income

122,700

60,000

60,000

0

122,700


(40,000)

(20,000)

20,000

(40,000)

Ending Balance

344,700

190,000

210,000

20,000

344,700

Balance Sheet

Cash

82,000

32,400

114,400

Accounts Receivable

80,000

90,000

170,000

Other Receivables

40,000

10,000

50,000

Inventory

200,000

130,000

330,000

Land

80,000

60,000

140,000


500,000

250,000

42,000

792,000


(155,000)

(75,000)

24,000

(257,000)

3,000


245,700

213,300

16,200

16,200

Total Assets

1,072,700

497,400

42,000

256,500

1,355,600

Accounts Payable

63,000

35,000

98,000

Other Payables

95,000

20,000

115,000

Bonds Payable

250,000

200,000

450,000

Bond Premium

2,400

2,400

Common Stock

210,000

50,000

50,000

210,000


110,000

110,000

Retained Earnings

344,700

190,000

210,000

20,000

344,700


23,700

25,500

1,800


1,072,700

497,400

260,000

45,500

1,355,600


7-57

P7-38 Comprehensive Problem: Intercorporate Transfers

Note: Some of the numbers were not correctly adjusted from the modified to the fully adjusted equity method before the 9th edition was printed. If you complete the problem based on the numbers given in the trial balance in the text, the investment and income from sub accounts will not be fully eliminated. In order to correct this problem, please use the following adjusted numbers for Rossman Corporation:

Investment in Schmid Stock = 2,974,000 Income from Schmid = 109,500 Retained Earnings, January 1 = 1,474,800

These calculations are based on the corrected numbers

a. Computation of differential as of January 1, 20X8:

Original differential at December 31, 20X1

$ 150,000

Less: Portion written off for sale of inventory

(30,000)

Remaining differential, January 1, 20X8

$ 120,000

b. Verification of balance in Investment in Schmid Stock account:

Schmid retained earnings, January 1, 20X8

$1,400,000

Schmid net income, 20X8:

110,000

Schmid dividends, 20X8

(20,000)

Schmid retained earnings, December 31, 20X8

$1,490,000

Schmid stockholders' equity:

Common stock

$1,000,000

Additional paid-in capital

1,350,000

Retained earnings, December 31, 20X8

1,490,000

Stockholders' equity, December 31, 20X8

$3,840,000

Rossman's ownership share

x .75

Book value of shares held by Rossman

$2,880,000

Remaining differential at January 1, 20X8: ($120,000 x 0.75) 90,000

Deferred gain on downstream sale of land

(23,000)

Loss on sale of equipment

30,000 Reverse part of loss on sale of equipment

(3,000)

Balance in Investment in Schmid account, December 31, 20X8 $2,974,000


7-58

These calculations are based on the uncorrected numbers

b. Verification of balance in Investment in Schmid Stock account:

Schmid retained earnings, January 1, 20X8

$1,400,000

Schmid net income, 20X8:

110,000

Schmid dividends, 20X8

(20,000)

Schmid retained earnings, December 31, 20X8

$1,490,000

Schmid stockholders' equity:

Common stock

$1,000,000

Additional paid-in capital

1,350,000

Retained earnings, December 31, 20X8

1,490,000

Stockholders' equity, December 31, 20X8

$3,840,000

Rossman's ownership share

x .75

Book value of shares held by Rossman

$2,880,000

Remaining differential at January 1, 20X8: ($120,000 x 0.75) 90,000

Deferred gain on downstream sale of land

(23,000)

Loss on sale of equipment

30,000 Reverse part of loss on sale of equipment

(3,000)

Incorrect Number

6,000

Balance in Investment in Schmid account, December 31, 20X8 $2,980,000


7-59

P7-38 (continued)

c. These calculations are based on the corrected numbers


NCI 25%

+ Rossman

Corp. 75%

=

Common

Stock +

Add. Paid-in Capital

+

Retained

Earnings


2,812,500

1,000,000

1,350,000

1,400,000

+ Net Income 27,500

82,500

110,000

- Dividends (5,000)

(15,000)

(20,000)


2,880,000

1,000,000

1,350,000

1,490,000


Total

=

Rossman Corp.'s

share

+

NCI's share

Upstream Asset 40,000

30,000

10,000

Extra Depreciation (4,000)

(3,000)

(1,000)

Total 36,000

27,000

9,000


1,000,000

Original amount invested (100%) Additional Paid-in Capital

1,350,000

Beginning balance in APIC Retained earnings

1,400,000

Beginning balance in RE Income from Schmid Dist.

109,500

Rossman’s share of NI - Def. Gain NCI in NI of Schmid Dist.

36,500

NCI share of NI - Def. Gain Dividends declared

20,000

100% of Schmid.'s dividends Investment in Schmid Dist.

2,907,000

Rossman's share of BV - Def. Gain NCI in NA of Schmid Dist.

969,000

NCI share of BV - Def. Gain


NCI 25% +

Rossman Corp. 75% =

Land + Goodwill Beginning balance 30,000

90,000

56,000

64,000

Changes 0

0

0

0


90,000

56,000

64,000

Excess value (differential) reclassification entry: Land

56,000

Goodwill

64,000

Investment in Schmid Dist.

90,000

NCI in NA of Schmid Dist.

30,000


7-60

P7-38 (continued)

Eliminate services Other Income

80,000

Other Expenses

80,000

Eliminate intercompany payables/receivables Current payables

20,000

Current receivables

20,000

Eliminate intercompany dividend owed Current payables

3,750

Current receivables

3,750

Eliminate gain on purchase of land Investment in Schmid Dist.

23,000

Land

23,000

Equipment


Rossman Corp.

250,000

Actual

25,000

145,000

185,000

4,000

Schmid Dist.

435,000

"As If"

174,000

Eliminate the gain on Equipment and correct asset's basis: Equipment

185,000

Loss on Sale

40,000


145,000


4,000


4,000


Schmid Dist.

Schmid Dist.

Beginning Balance

2,879,500

75% Net Income

82,500

82,500

75% Net Income

15,000

75% Dividends

Def. Loss on Equipment

30,000

3,000

Realize Loss Gain

3,000

30,000

Def. Gain on Equipment

Ending Balance

2,974,000

109,500

Ending Balance

2,907,000

Basic 109,500

Def. Gain on Land

23,000

90,000

Excess Reclass.

0

0


7-61

P7-38 (continued)

d. This worksheet is based on the corrected numbers:

Elimination Entries

Rossman

Corp.

Schmid

Dist.

DR

CR

Consolidated

Income Statement

Sales

4,801,000

985,000

5,786,000

Other Income or Loss

90,000

(35,000)

80,000

40,000

15,000

Less: COGS

(2,193,000)

(525,000)

(2,718,000)

Less: Depreciation & Amort. Expense (202,000)

(88,000)

4,000

(294,000)


(1,381,000)

(227,000)

80,000

(1,528,000)

Income from Schmid Dist.

109,500

109,500

0


1,224,500

110,000

193,500

120,000

1,261,000

NCI in Net Income

36,500

(36,500)


1,224,500

110,000

230,000

120,000

1,224,500


Beginning Balance

1,474,800

1,400,000

1,400,000

1,474,800

Net Income

1,224,500

110,000

230,000

120,000

1,224,500


(50,000)

(20,000)

20,000

(50,000)

Ending Balance

2,649,300

1,490,000

1,630,000

140,000

2,649,300

Balance Sheet

Cash

50,700

38,000

88,700

Current Receivables

101,800

89,400

23,750

167,450

Inventory

286,000

218,900

504,900

Land

400,000

1,200,000

56,000

23,000

1,633,000


2,400,000

2,990,000

185,000

5,575,000


(1,105,000)

(420,000)

145,000

(1,674,000)

4,000


2,974,000

23,000

2,907,000

0

90,000

Goodwill

64,000

64,000

Total Assets

5,107,500

4,116,300

328,000

3,192,750

6,359,050

Current Payables

86,200

76,300

23,750

138,750

Bonds Payable

1,000,000

200,000

1,200,000

Common Stock

100,000

1,000,000

1,000,000

100,000


1,272,000

1,350,000

1,350,000

1,272,000

Retained Earnings

2,649,300

1,490,000

1,630,000

140,000

2,649,300


969,000

999,000

30,000


5,107,500

4,116,300

4,003,750

1,139,000

6,359,050


7-62

P7-38 (continued)

d. This worksheet is based on the uncorrected numbers:

Elimination Entries

Rossman

Corp.

Schmid

Dist.

DR

CR

Consolidated

Income Statement

Sales

4,801,000

985,000

5,786,000

Other Income or Loss

90,000

(35,000)

80,000

40,000

15,000

Less: COGS

(2,193,000)

(525,000)

(2,718,000)


(88,000)

4,000

(294,000)


(1,381,000)

(227,000)

80,000

(1,528,000)

Income from Schmid Dist.

115,500

109,500

6,000


1,230,500

110,000

193,500

120,000

1,267,000

NCI in Net Income

36,500

(36,500)


1,230,500

110,000

230,000

120,000

1,230,500


Beginning Balance

1,474,800

1,400,000

1,400,000

1,474,800

Net Income

1,230,500

110,000

230,000

120,000

1,230,500


(50,000)

(20,000)

20,000

(50,000)

Ending Balance

2,655,300

1,490,000

1,630,000

140,000

2,655,300

Balance Sheet

Cash

50,700

38,000

88,700

Current Receivables

101,800

89,400

23,750

167,450

Inventory

286,000

218,900

504,900

Land

400,000

1,200,000

56,000

23,000

1,633,000


2,400,000

2,990,000

185,000

5,575,000


(1,105,000)

(420,000)

145,000

(1,674,000)

4,000


2,980,000

23,000

2,907,000

6,000

90,000

Goodwill

64,000

64,000

Total Assets

5,113,500

4,116,300

328,000

3,192,750

6,365,050

Current Payables

86,200

76,300

23,750

138,750

Bonds Payable

1,000,000

200,000

1,200,000

Common Stock

100,000

1,000,000

1,000,000

100,000


1,272,000

1,350,000

1,350,000

1,272,000

Retained Earnings

2,655,300

1,490,000

1,630,000

140,000

2,655,300


969,000

999,000

30,000


5,113,500

4,116,300

4,003,750

1,139,000

6,365,050


7-63

P7-39A Computation of Retained Earnings following Multiple Transfers

Consolidated retained earnings, January 1, 20X8:

Great Company’s retained earnings, January 1

$450,000

Unrealized profit on land ($16,000 x 0.80)

(12,800)

Unrealized profit on depreciable assets

[$22,000 - ($2,200 x 2)]

(17,600)

Consolidated retained earnings

$419,600

Consolidated retained earnings, December 31, 20X8:

Consolidated retained earnings, January 1

$419,600

Great Company’s operating income for 20X8 $65,000

Less: Dividends paid in 20X8 (45,000)

Increase in retained earnings from Great’s operations

20,000

Meager’s net income for 20X8 $ 30,000

Less: Amortization of differential assigned to equipment:

($325,000 - $290,000) / 10 years (3,500)

Impairment of goodwill (17,500)

Realized income $ 9,000

Proportion of ownership held x 0.80

7,200

Realization of gain on sale of building

($22,000 / 10 years)

2,200


$449,000

Alternate computation of retained earnings balance:

Great Company’s retained earnings, January 1

$450,000

Operating income for 20X8

65,000

Dividends paid in 20X8

(45,000)

Investment income from Meager Company for 20X8:

Meager's net income $30,000

Proportion of ownership held x 0.80

Proportionate share of Meager’s reported net income

24,000

Amortization of differential assigned to equipment:

[($325,000 - $290,000) x 0.80] / 10 years

(2,800)

Goodwill impairment loss ($17,500 x 0.80)

(14,000)

Great Company’s retained earnings

$477,200

Unrealized profit on land ($16,000 x 0.80)

(12,800)

Unrealized profit on depreciable assets

[$22,000 - ($2,200 x 3)]

(15,400)


$449,000


7-64

P7-40A Consolidation Worksheet with Intercompany Transfers (Modified Equity Method)


NCI 35%

+

Mist Co. 65%

=

Common

Stock

+ Retained

Earnings


94,250

60,000

85,000

+ Net Income 10,500

19,500

30,000

- Dividends (1,750)

(3,250)

(5,000)


110,500

60,000

110,000


60,000


85,000

Beginning balance in retained earnings

Income from Blank Corp. 19,500

Mist Co.’s share of NI NCI in NI of Blank Corp. 6,265

NCI share of NI – Def. Gain + Extra Dep. Dividends declared

5,000

100% of Blank Corp.'s dividends declared Investment in Blank Corp. 110,500

Net BV left in the investment account NCI in NA of Blank Corp.

55,265


Eliminate gain on purchase of land Gain on Sale of Land 4,000

Land

4,000

Eliminate the gain on Building and correct asset's basis:

Gain on Sale on Building 13,200


1,100

Building and Equipment (net) 12,100

Eliminate intercompany services Sales 24,000

Other Expenses

24,000


7-65

P7-40A (continued)

b.

Elimination Entries

Mist Co.

Blank Corp.

DR

CR

Consolidated

Income Statement

Sales

286,500

128,500

24,000

391,000

Gain on Sale of Land

4,000

4,000

0

Gain on Sale of Building

13,200

13,200

0

Less: COGS

(160,000)

(75,000)

(235,000)


(22,000)

(19,000)

1,100

(39,900)


(76,000)

(17,700)

24,000

(69,700)

Income from Blank Corp.

19,500

19,500

0


52,000

30,000

60,700

25,100

46,400

NCI in Net Income

6,265

(6,265)


52,000

30,000

66,965

25,100

40,135


Beginning Balance

198,000

85,000

85,000

198,000

Net Income

52,000

30,000

66,965

25,100

40,135


(25,000)

(5,000)

5,000

(25,000)

Ending Balance

225,000

110,000

151,965

30,100

213,135

Balance Sheet

Cash

32,500

22,000

54,500

Accounts Receivable

62,000

37,000

99,000

Inventory

95,000

71,000

166,000

Land

40,000

15,000

4,000

51,000

Buildings & Equipment (net)

200,000

125,000

12,100

312,900

Investment in Blank Corp.

110,500

110,500

0

Total Assets

540,000

270,000

0

126,600

683,400

Accounts Payable

35,000

20,000

55,000

Bonds Payable

180,000

80,000

260,000

Common Stock

100,000

60,000

60,000

100,000

Retained Earnings

225,000

110,000

151,965

30,100

213,135

NCI in NA of Blank Corp.

55,265

55,265


540,000

270,000

211,965

85,365

683,400


7-66

P7-40A (continued)

c. Mist Company and Subsidiary Consolidated Balance Sheet

December 31, 20X4

Cash

$ 54,500

Accounts Receivable

99,000

Inventory

166,000

Land

51,000

Buildings and Equipment (net)

312,900

Total Assets

$683,400

Accounts Payable

$ 55,000

Bonds Payable

260,000






Noncontrolling Interest 55,265


368,400


$683,400

Mist Company and Subsidiary Consolidated Income Statement Year Ended December 31, 20X4

Sales

$391,000




Total Expenses

(344,600)


$ 46,400


(6,265)


$ 40,135

Mist Company and Subsidiary Consolidated Retained Earnings Statement



$198,000


40,135

$238,135


(25,000)


$213,135


7-67

P7-41A Modified Equity Method

Note: In converting P7-32 from the modified to the fully adjusted equity method, we failed to deduct the $8,000 deferred gain from the land sale in 2005 from the beginning balance of the investment and retained earnings accounts. This error carries over to this problem. If you complete the problem based on the numbers given in the trial balance in the text, the investment account will not be fully eliminated. In order to correct this problem, please reduce the Investment in Lane Company Stock and Retained Earnings of Prime Company by 8,000. Adjusted balances in the trial balance:


This trial balance is based on the corrected numbers:

a. Adjusted trial balance:

Prime Company

Lane Company

Item

Debit

Credit

Debit

Credit

Cash and Accounts Receivable $ 151,000

$ 55,000

Inventory 240,000

100,000

Land 100,000

80,000


150,000

Investment in Lane Company

Stock 240,000

Cost of Goods Sold 160,000

80,000

Depreciation and Amortization 25,000

15,000


10,000

Dividends Declared 60,000

35,000


$ 230,000

$ 60,000

Accounts Payable

60,000

25,000

Bonds Payable

200,000

50,000

Common Stock

300,000

100,000

Retained Earnings

420,000

140,000

Sales

250,000

150,000

Income from Subsidiary

36,000

Total $1,496,000

$1,496,000

$525,000

$525,000


7-68

This trial balance is based on the uncorrected numbers:

a. Adjusted trial balance:

Prime Company

Lane Company

Item

Debit

Credit

Debit

Credit

Cash and Accounts Receivable $ 151,000

$ 55,000

Inventory 240,000

100,000

Land 100,000

80,000


150,000

Investment in Lane Company

Stock 248,000

Cost of Goods Sold 160,000

80,000

Depreciation and Amortization 25,000

15,000


10,000

Dividends Declared 60,000

35,000


$ 230,000

$ 60,000

Accounts Payable

60,000

25,000

Bonds Payable

200,000

50,000

Common Stock

300,000

100,000

Retained Earnings

428,000

140,000

Sales

250,000

150,000

Income from Subsidiary

36,000

Total $1,504,000

$1,504,000

$525,000

$525,000


7-69

P7-41A (continued)

b. These calculations are based on the corrected numbers:


36,000


36,000

Record Prime Co.'s 80% share of Lane Co.'s 20X7 income

Cash

28,000



c. Basic elimination entry Common stock

100,000

Retained earnings

140,000


36,000


9,000

Dividends declared

35,000


200,000


50,000

Excess value (differential) reclassification entry: Goodwill

32,000

Remaining goodwill

Retained Earnings

14,400

Lane's portion of goodwill impairment loss from last year


40,000

Remaining balance in investment account NCI in NA of Lane Co.

6,400

NCI's share of differential and loss [($50,000 - 18,000) * .2]

Eliminate intercompany accounts: Accounts Payable

4,000


4,000

Eliminate gain on purchase of land Retained Earnings

8,000


2,000

Land

10,000

Equipment


Lane Co.

70,000

Actual

14,000

5,000

2,000

23,000

Prime Co.

75,000

"As If"

35,000

Eliminate the gain on Equipment and correct asset's basis: Retained Earnings

18,000

Equipment

5,000


23,000


2,000


2,000


7-70

P7-41A (continued)

d. This worksheet is based on the corrected numbers:

Elimination Entries

Prime

Co.

Lane Co.

DR

CR

Consolidated

Income Statement

Sales

250,000

150,000

400,000

Less: COGS

(160,000)

(80,000)

(240,000)

Less: Depreciation & Amort. Exp. (25,000)

(15,000)

2,000

(38,000)


(20,000)

(10,000)

(30,000)


36,000

36,000

0


81,000

45,000

36,000

2,000

92,000

NCI in Net Income

9,000

(9,000)


81,000

45,000

45,000

2,000

83,000


Beginning Balance

420,000

140,000

140,000

379,600

14,400

8,000

18,000

Net Income

81,000

45,000

45,000

2,000

83,000


(60,000)

(35,000)

35,000

(60,000)

Ending Balance

441,000

150,000

225,400

37,000

402,600

Balance Sheet


151,000

55,000

4,000

202,000

Inventory

240,000

100,000

340,000

Land

100,000

80,000

10,000

170,000


500,000

150,000

5,000

655,000


(230,000)

(60,000)

2,000

23,000

(311,000)


240,000

200,000

0

40,000

Goodwill

32,000

32,000

Total Assets

1,001,000

325,000

39,000

277,000

1,088,000

Accounts Payable

60,000

25,000

4,000

81,000

Bonds Payable

200,000

50,000

250,000

Common Stock

300,000

100,000

100,000

300,000

Retained Earnings

441,000

150,000

225,400

37,000

402,600


2,000

50,000

54,400

6,400


1,001,000

325,000

331,400

93,400

1,088,000


7-71

P7-41A (continued)

d. This worksheet is based on the uncorrected numbers:

Elimination Entries

Prime

Co.

Lane Co.

DR

CR

Consolidated

Income Statement

Sales

250,000

150,000

400,000

Less: COGS

(160,000)

(80,000)

(240,000)


(15,000)

2,000

(38,000)


(20,000)

(10,000)

(30,000)


36,000

36,000

0


81,000

45,000

36,000

2,000

92,000

NCI in Net Income

9,000

(9,000)


81,000

45,000

45,000

2,000

83,000


Beginning Balance

428,000

140,000

140,000

387,600

14,400

8,000

18,000

Net Income

81,000

45,000

45,000

2,000

83,000


(60,000)

(35,000)

35,000

(60,000)

Ending Balance

449,000

150,000

225,400

37,000

410,600

Balance Sheet

Cash and Accounts Rec.

151,000

55,000

4,000

202,000

Inventory

240,000

100,000

340,000

Land

100,000

80,000

10,000

170,000


500,000

150,000

5,000

655,000


(230,000)

(60,000)

2,000

23,000

(311,000)


248,000

200,000

8,000

40,000

Goodwill

32,000

32,000

Total Assets

1,009,000

325,000

39,000

277,000

1,096,000

Accounts Payable

60,000

25,000

4,000

81,000

Bonds Payable

200,000

50,000

250,000

Common Stock

300,000

100,000

100,000

300,000

Retained Earnings

449,000

150,000

225,400

37,000

410,600


2,000

50,000

54,400

6,400


1,009,000

325,000

331,400

93,400

1,096,000


7-72

P7-42A Cost Method

a. Journal entry recorded by Prime Company:

Cash 28,000

Dividend Income

28,000

Record dividend from Lane Company.

b. Investment elimination entry Common stock

100,000

Retained earnings

70,000

Goodwill

25,000


160,000


35,000

Dividend elimination entry Dividend Income

28,000

NCI in NI of Lane Co. 7,000

Dividends Declared

35,000

Assign undistributed income to NCI Retained Earnings

18,000


18,000

Eliminate intercompany accounts: Accounts Payable

4,000

Cash and Accounts Receivable 4,000

Eliminate gain on purchase of land Retained Earnings

8,000

NCI in NI of Lane Co. 2,000

Land

10,000

Eliminate the gain on Equipment and correct asset's basis: Retained Earnings

18,000

Equipment

5,000




2,000


7-73

P7-42A (continued)

c.

Elimination Entries

Prime

Co.

Lane Co.

DR

CR

Consolidated

Income Statement

Sales

250,000

150,000

400,000

Less: COGS

(160,000)

(80,000)

(240,000)

Less: Depr. & Amort. Exp. (25,000)

(15,000)

2,000

(38,000)


(20,000)

(10,000)

(30,000)

Dividend Income

28,000

28,000

0


73,000

45,000

28,000

2,000

92,000

NCI in Net Income

7,000

(9,000)

2,000


73,000

45,000

37,000

2,000

83,000


Beginning Balance

348,000

140,000

70,000

374,000

18,000

8,000

18,000

Net Income

73,000

45,000

37,000

2,000

83,000


(60,000)

(35,000)

35,000

(60,000)

Ending Balance

361,000

150,000

151,000

37,000

397,000

Balance Sheet

Cash and Accounts Rec.e

151,000

55,000

4,000

202,000

Inventory

240,000

100,000

340,000

Land

100,000

80,000

10,000

170,000


500,000

150,000

5,000

655,000


(230,000)

(60,000)

2,000

23,000

(311,000)


160,000

160,000

0

Goodwill

25,000

25,000

Total Assets

921,000

325,000

32,000

197,000

1,081,000

Accounts Payable

60,000

25,000

4,000

81,000

Bonds Payable

200,000

50,000

250,000

Common Stock

300,000

100,000

100,000

300,000

Retained Earnings

361,000

150,000

151,000

37,000

397,000


35,000

53,000

18,000


921,000

325,000

255,000

90,000

1,081,000

chapter 7 · chapter 07 -intercompany transfers of services and noncurrent assets 7-2 q7-10 the...

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