Question

On January 1, 2018, Ackerman sold equipment to Brannigan (a wholly owned subsidiary) for $210,000 in cash. The equipment had originally cost $189,000 but had a book value of only $115,500 when transferred. On that date, the equipment had a five-year remaining life. Depreciation expense is computed using the straight-line method.

Ackerman reported $310,000 in net income in 2018 (not including any investment income) while Brannigan reported $101,300. Ackerman attributed any excess acquisition-date fair value to Brannigan's unpatented technology, which was amortized at a rate of $4,100 per year.

1. What is consolidated net income for 2018?
2. What is the parent's share of consolidated net income for 2018 if Ackerman owns only 90 percent of Brannigan?
3. What is the parent's share of consolidated net income for 2018 if Ackerman owns only 90 percent of Brannigan and the equipment transfer was upstream?
4. What is the consolidated net income for 2019 if Ackerman reports $330,000 (does not include investment income) and Brannigan $111,400 in income? Assume that Brannigan is a wholly owned subsidiary and the equipment transfer was downstream.

Answer 1

Ans a
Net Income-Ackerman		$310,000
Net Income-Brannigan	101,300
Less: Excess amortization on Unpatentend technology	-4100
less: Remove Unrealized gain on equipment (210000-115500)	-94500
Add: excess depreciation charged on inflated transfer price of equipment (94500/5)	18,900	21,600
Consolidated Net Income		$331,600
Ans b
Consolidated Net Income		$331,600
Less: Net Income attributable to Non controlling interest
Net Income-Brannigan	101,300
Less: Excess amortization on Unpatentend technology	-4100
	97,200
10% of it	9,720
Net Income attributable to Non controlling interest		-9,720
Consolidated Net Income		$321,880
Ans c
Consolidated Net Income	$331,600
Less: Net Income attributable to Non controlling interest	-2,160
Consolidated Net Income		$329,440
working
Net Income-Brannigan	101,300
Less: Excess amortization on Unpatentend technology	-4,100
less: Remove Unrealized gain on equipment (210000-115,500)	-94,500
Add: excess depreciation charged on inflated transfer price of equipment (94,500/5)	18,900
Brannigan realized income	21,600
10% of NI	2,160
Ans d
Net Income-Ackerman		$330,000
Net Income-Brannigan	111,400
Less: Excess amortization on Unpatentend technology	-4100
Add: excess depreciation charged on inflated transfer price of equipment (94,500/5) (year after transfer)	18,900	126,200
Consolidated Net Income		$456,200