Question

On January 1st 2020, Hulk Company acquired all of the stock of Spiderman Company at book value. Hulk uses the initial value method to account for its investment in Spiderman and Spiderman doesn't pay any dividends

On January 1st 2015 Hulk purchased a piece of equipment for $100,000. This equipment is expected to last 10 years with $7000 salvage; Hulk uses straight line depreciation.

On January 1, 2018, Hulk sold the equipment to Spiderman for $81,000 receiving a 1 year 12% note with principle and interest due January 1, 2019. Spiderman believes the equipment will last 7 years and have a $4000 salvage.

On January 1, 2021 Spiderman sold the equipment to Aquaman (an outside company) for $57,000 cash.

Required:

A) Make Hulk's journal entry when they sold the equipment at to Spiderman

b) make Spiderman's journal entry when they buy the equipment from Hulk

c) Make the necessary worksheet entries for 2018

d) Hulk reported unconsolididated income of $500,000 in 2018 and Spiderman reported income of $70,000. What is consolidated income?

e) make the necessary worksheet entries for 2019

f) make the journal entry Spiderman makes when it sells the equipment to Aquaman

g) In 2021 Hulk reported income (unconsolidated) of $625,000 and Spiderman reported income of $123,000 what is consoldiated income

Answer 1

For Working see detail Notes below
A) Make Hulk's journal entry when they sold the equipment at to Spiderman
For Hulk Company
12% Note-Spiderman A/c	Dr	81000
To Equipment(PPE) a/c			72100
To Profit on sale of equipment			8900
(being asset sold and Note received)
b) Make Spiderman's journal entry when they buy the equipment from Hulk
For Superman Company
Equipment(PPE) a/c	Dr	81,000
12% Note-Spiderman issued			81,000
(being assset purchased and note issued)
c) Make the necessary worksheet entries for 2018
For Superman Company
Interest on Note Expense	Dr	9720
To Interest payable on Note			9720
(being interest became due)
Statement of P/L	Dr	20720
To Depreciation on Equipment A/c			11000
To Interest on Note Expense			9720
(transfer of entries to P/L)
For Hulk Company
Interest Recievable a/c	Dr	9720
To Interest Income			9720
(being interest became due for receipt)
Profit on Sale of equipment a/c	Dr	8900
Interest Income	Dr	9720
To Statement of P/L			18620
(transfer of entries to P/L)
d) Hulk reported unconsolididated income of $500,000 in 2018 and Spiderman reported income of $70,000. What is consolidated income?
The income can not be consolidated in 2018 as the Hulk company acquired Spiderman Company in 2020; hence no consolidation prior to that
e) make the necessary worksheet entries for 2019
For Superman Company
Interest on Note Expense	Dr	9720
To Interest payable on Note			9720
(being interest became due)
Statement of P/L	Dr	20720
To Depreciation on Equipment A/c			11000
To Interest on Note Expense			9720
(transfer of entries to P/L)
For Hulk Company
Interest Recievable a/c	Dr	9720
To Interest Income			9720
(being interest became due for receipt)
Interest Income	Dr	9720
To Statement of P/L			9720
(transfer of entries to P/L)
f) make the journal entry Spiderman makes when it sells the equipment to Aquaman
Cash A/c	Dr	57000
Loss on sale of Equipment		2000
To Equipment(PPE) a/c			59000
(being asset sold and Note received)
g) In 2021 Hulk reported income (unconsolidated) of $625,000 and Spiderman reported income of $123,000 what is consoldiated income
As Hulk Company is holding 100% shares of Spiderman Company the consolideated income of Hulk Company in2021 will be-
748000(625000+123000) Working Notes for the Equipment For Hulk Company Opening balance Depreciation Closing Value 01-Jan-16 100,000             9,300     90,700 01-Jan-17     90,700             9,300     81,400 01-Jan-18     81,400             9,300     72,100 For Spiderman Company Opening balance Depreciation Closing Value 01-Jan-19     81,000     11,000     70,000 01-Jan-20     70,000     11,000     59,000 01-Jan-21     59,000