Parent Company holds 85 percent of Surrogate Company’s voting common shares. On December 31, 20X8, Parent...

Parent Company holds 85 percent of Surrogate Company’s voting common shares. On December 31, 20X8, Parent recorded a loss of $14,000 on the sale of equipment to Surrogate. At the time of the sale, the equipment’s estimated remaining economic life was eight years.

Required:
a. Will consolidated net income be increased or decreased when consolidation entries associated with the sale of equipment are made at December 31, 20X8? By what amount?

b. Will consolidated net income be increased or decreased when consolidation entries associated with the sale of equipment are made at December 31, 20X9? By what amount?

Swanson Corporation purchased land from Clayton Corporation for $244,000 on December 20, 20X3. This purchase followed a series of transactions between Swanson-controlled subsidiaries. On February 7, 20X3, Sullivan Corporation purchased the land from a nonaffiliate for $160,000. It sold the land to Kolder Company for $144,000 on October 10, 20X3, and Kolder sold the land to Clayton for $189,000 on November 27, 20X3. Swanson has control of the following companies:

Subsidiary	Level of Ownership			20X3 Net Income
Sullivan Corporation		80	percent		$	139,000
Kolder Company		70	percent			63,000
Clayton Corporation		90	percent			84,000

Swanson reported income from its separate operations of $169,000 for 20X3. (Leave no cell blank, enter "0" wherever required.)

Required:
a. At what amount should the land be reported in the consolidated balance sheet as of December 31, 20X3?

b. What amount of gain or loss on sale of land should be reported in the consolidated income statement for 20X3?

c. What amount of income should be assigned to the controlling shareholders in the consolidated income statement for 20X3?

d. Prepare the consolidation entry related to the land that should appear in the worksheet used to prepare consolidated financial statements for 20X3. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Expert Solution

a. Consolidated income will increase by 14,000 as loss from intercompany sales shall be reversed as per IFRS 10 in consolidated financial statement.

b. Consolidated income decrease by 1,750 (14,000/8) because depreciation amount is less in standalone financials of Surrogate which needs to be trued up in the consolidated financial statements.

In the consolidated books of Swanson-

a. Land should be reported at price purchased from non-affiliate and shall continued be recorded at same value until the land is sold to a third party in which case, group will realise the internally generated loss or gain. Hence, land shall be accounted at 160,000, price at which is purchased from non-affiliate initially.

b. There shall Nil gain or loss in consolidated net income for 20X3 as all the intercompany transactions shall reverse in consolidated Financials as per IFRS 10.

c. Following entry should appear in consolidated Financials-

Date	Accounts	Debit	Credit
31/12/20X3	Land A/c---Dr	16,000
	Loss on sale of land A/c---cr.		16,000
	(Being loss accounted by Sulivan reversed)

31/12/20X3	Gain on sale of land A/c---Dr	45,000
	To Land A/c		45,000
	(Being gain recorded by Kolder reversed)

31/12/20X3	Gain on sale of land A/c---Dr	55,000
	To Land A/c		55,000
	(Being gain recorded by Clayton reversed)

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