Azkaban acquired 80% interest in Hogwarts in 2021 at a time when Hogwarts’ book values and fair values were equal. In 2022, Hogwarts sold land to Azkaban for P82,000 that cost P72,000. The land remained in Azkaban’s possession until 2023 when Azkaban sold it outside the combined entity for P102,000.After the books were closed in 2023, it was discovered that Azkaban had not considered the unrealized gain from its intercompany purchase of land in preparing consolidated financial statements.The only entry on Azkaban’s book was:a debit to Land and a credit to Cash for P82,000 in 2022a debit to cash for P102,000 and credit to Land for P82,000 and gain on sale of land for P20,000 in 2023Before the discovery of the error, the consolidated financial statements disclosed the following amounts:Consolidated net income P750,000, P600,000 and P910,000 for 2021, 2022, and 2023 respectively.Land P200,000, P240,000 and P300,000 for 2021, 2022, and 2023 respectively.Determine the correct amount of consolidated net income for 2023.

Azkaban acquired interest in Hogwarts in 2021 = 80% Controlling interest of Azkaban in Hogwarts =…

Answered: Azkaban acquired 80% interest in…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Azkaban acquired 80% interest in Hogwarts in 2021 at a time when Hogwarts’ book values and fair values were equal. In 2022, Hogwarts sold land to Azkaban for P82,000 that cost P72,000. The land remained in Azkaban’s possession until 2023 when Azkaban sold it outside the combined entity for P102,000.

After the books were closed in 2023, it was discovered that Azkaban had not considered the unrealized gain from its intercompany purchase of land in preparing consolidated financial statements.

The only entry on Azkaban’s book was:

a debit to Land and a credit to Cash for P82,000 in 2022
a debit to cash for P102,000 and credit to Land for P82,000 and gain on sale of land for P20,000 in 2023

Before the discovery of the error, the consolidated financial statements disclosed the following amounts:

Consolidated net income P750,000, P600,000 and P910,000 for 2021, 2022, and 2023 respectively.
Land P200,000, P240,000 and P300,000 for 2021, 2022, and 2023 respectively.

Determine the correct amount of consolidated net income for 2023.

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