Reference no: EM1311985
Sale of Machinery to Subsidiary Corporation as well as Calculation of Income in Acquired Company
Q1
Petro Celli Corporation sold machinery with a 3-year remaining useful life to its wholly owned subsidiary, Sun woo Corporation, on July 1, 2003, for a price of $5,000 in excess of its book value. The sales price of the machinery to Sun woo is equal to its fair value. Which of the following statements is correct?
- From the viewpoint of the consolidated entity, there are no unrealized profits because the transfer was at fair value.
- No adjustment for unrealized profits is necessary in the consolidation working papers because the subsidiary is 100% owned.
- The effects of the unrealized profits should be eliminated from investment income under the equity method and from the consolidated financial statements.
- No adjustment for unrealized profits is required in the consolidation working papers if Petro celli uses the equity method in accounting for its investment in Sun woo
Q2
The material sale f inventory items by a parent company to an affiliated company:
- Enters he consolidate revenue computation only if the transfer was the result of arms\'s length bargaining
- Affects consolidated net income under a periodic inventory systems but not under perpetual inventory system
- Does not result in consolidated income until the merchandise is sold to outside parties
- Does not require a working paper adjustment if the merchandise was transferred at cost
Q3
Penguin Corporation acquired a 60% interest in Swift Corporation on January 1, 2003, at book value equal to fair value. During 2003, Paquin sold merchandise that cost $90,000 to Swift for $126,000 . One thrd of this merchandise remained in Swift's inventory at December 31, 2003. Swift reported net income at 80,000 for 2003.
Paquin's income from Swift for 2003 is
- $ 24,000
- $33,600
- $36,000
- $40,800
Q4
Please use information for the following questions:
On January 1, 2003, Dunn Corporation purchased 75% of the common stock of Lapp Corporation. Separate balance sheet data for the companies at the combination date are given below:
|
Dunn
|
Lapp
|
Cash
|
12,000
|
103,000
|
Accounts Receivable
|
72,000
|
13,000
|
Inventory
|
66,000
|
19,000
|
Land
|
39,000
|
16,000
|
Plant Assets
|
350,000
|
150,000
|
Acc Depreciation
|
(120,000)
|
(30,000)
|
Investment in Lapp 196,000
|
|
|
Total Assets
|
615,000
|
271,000
|
Accounts Payable
|
103,000
|
71,000
|
Capital Stock
|
400,000
|
150,000
|
Retained Earnings
|
112,000
|
50,000
|
Total Liabilities & Equities
|
615,000
|
271,000
|
At the date of the combination, the book value of Lapp's net assets were equal to the fair value except for Lapp's inventory which had a fair value of 30,000.
Determine below what the consolidated balance would be for each of the requested amounts?
a. What is the reported amount for the minority interest?
- $34,667
- $50,000
- $65,333
- $75,000
b. What amount of total liabilities will be reported?
- $103,000
- $130,500
- $156,140
- $174.000
c. What amount of Goodwill will be reported?
- $5,250
- $10,000
- $21,000
- 37,750