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Brown Corporation holds 70 percent of Transom Company’s voting common stock. On January 1, 20X2, Transom...

Brown Corporation holds 70 percent of Transom Company’s voting common stock. On January 1, 20X2, Transom paid $360,000 to acquire a building with a 15-year expected economic life. Transom uses straight-line depreciation for all depreciable assets. On December 31, 20X7, Brown purchased the building from Transom for $180,000. Brown reported income, excluding investment income from Transom, of $135,000 and $150,000 for 20X7 and 20X8, respectively. Transom reported net income of $12,000 and $48,000 for 20X7 and 20X8, respectively.


Required:
a.

Prepare the appropriate Consolidation entry or entries needed to eliminate the effects of the intercompany sale of the building in preparing consolidated financial statements for 20X7. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

     

b.

Compute the amount to be reported as consolidated net income for 20X7 and the income to be allocated to the controlling interest.

     

c.

Prepare the appropriate Consolidation entry or entries needed to eliminate the effects of the intercompany sale of the building in preparing consolidated financial statements for 20X8. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round your answer to whole dollar.)

     

d.

Compute consolidated net income and the amount of income assigned to the controlling shareholders in the consolidated income statement for 20X8. (Round your answer to whole dollar.)

Solutions

Expert Solution

Books of Brown Corpn. Books of Transom Co.
Jan 20X2 Buildings 360000
Cash 360000
Dec 31, 20X7 Carrying value 360000-(360000/15*6)=
216000
Journal entry for Purchase on Dec 31, 20X7 Journal entry for sale on Dec 31, 20X7
Buildings 180000 Cash 180000
Cash 180000 Acc.depn. Bldgs 144000
Loss on sale 36000
Buildings 360000
Above entry on consolidation
Buildings 180000
Acc.depn. Bldgs 144000
Loss on sale 36000
Buildings 360000
So, Net entry will be
Acc.depn. Bldgs 144000
Loss on sale 36000
Buildings 180000
a.
Elimination entry on consolidation will be
Buildings 180000
Acc.depn. Bldgs 144000
Loss on sale 36000
(to reverse the net entry & eliminate unrealised loss )
b..
Amount to be reported as consolidated net income for 20X7
135000+(12000+36000))=
183000
Less:Income allocated to Non-controlling interest in 20X7
(30%*(12000+36000))
14400
So,Income allocated to Controlling interest in 20X7
183000-14400=
168600
c.. Elimination entry in 20X8
Buildings(360000-180000) 180000
Depreciation expense((360000/15 yrs.)-(180000/9 rem.yrs.)) 4000
Acc.depn. Bldgs(144000+4000) 148000
Retained Earnings (Unrealised Loss 36000*70%) 25200
Non-Controlling interest(36000*30%) 10800
d.
Amount to be reported as consolidated net income for 20X7
150000+(48000- Depn. 4000))=
194000
Less:Income allocated to Non-controlling interest in 20X7
(30%*(48000-4000))
13200
So,Income allocated to Controlling interest in 20X7
194000-13200=
180800

ekkarill92 answered 1 year ago
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