Question

In: Accounting

On January 1, 2018, Ackerman sold equipment to Brannigan (a wholly owned subsidiary) for $210,000 in...

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.

Solutions

Expert Solution

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


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