Pearl Company acquired 90 % of Star Corporation on 1/2018. Fair values of Star's assets and liabilities approximated book values on that date. Pearl uses the initial value method to account for its investment in Star. On 1/2019, Pearl bought equipment from Star for $60,000 that had originally cost Star $120,000 and had of Accumulated depreciation at the time. The equipment had a five-year remaining life and was being depreciated using the straight line method. You are preparing the worksheet for the 2020 fiscal year. $ 110,000 d. How much excess depreciation will there be in each of the first five years after the transfer? e. Pearl's 2020 net income, without including any investment income, was $ 440,000 and Star reported net income of $ 135,000 in 2020. What consolidated income will be reported before removing the noncontrolling interest's share of the subsidiary's net income? (This includes the effect of the ED entry.) f. What will the noncontrolling interest's share of the subsidiary's net income be for 2020? (Consider whether the equipment sale had been upstream or downstream.)
Pearl Company acquired 90 % of Star Corporation on 1/2018. Fair values of Star's assets and liabilities approximated book values on that date. Pearl uses the initial value method to account for its investment in Star. On 1/2019, Pearl bought equipment from Star for $60,000 that had originally cost Star $120,000 and had of Accumulated depreciation at the time. The equipment had a five-year remaining life and was being depreciated using the straight line method. You are preparing the worksheet for the 2020 fiscal year. $ 110,000 d. How much excess depreciation will there be in each of the first five years after the transfer? e. Pearl's 2020 net income, without including any investment income, was $ 440,000 and Star reported net income of $ 135,000 in 2020. What consolidated income will be reported before removing the noncontrolling interest's share of the subsidiary's net income? (This includes the effect of the ED entry.) f. What will the noncontrolling interest's share of the subsidiary's net income be for 2020? (Consider whether the equipment sale had been upstream or downstream.)
Chapter14: Property Transact Ions: Capital Gains And Losses, § 1231, And Recapture Provisions
Section: Chapter Questions
Problem 75P
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My feedback from my teacher (For part e, the excess
This is what I did:
| D) | EXCESS DEPRECIATION $10,000 PER YEAR | DEPRECIATION 01/2020 AFTER SALE | $ 12,000 | 60000/5 | |
| LESS: DEPRECIATION ON 1/2020 (NOT SOLD) | $ (2,000) | 10000/5 | |||
| EXCESS DEPRECIATION | $ 10,000 | ||||
| E) | NET INCOME CONSOLIDATED SUBSIDARY | $ 565,000 | PEARL COMPANY NI 2020 | 440,000 | |
| STAR CORPORATION NI 01/2020 | 135,000 | ||||
| LESS -INTER COMPANY GAIN ON SALE | (10,000) | 125,000 | |||
| CONSOLIDATED NI | 565,000 | ||||
| F) | NET INCOME OF NCI | $ 12,500 | STAR CORPORATION | $ 12,500 | |
| 125000*.10= |
Transcribed Image Text:Pearl Company acquired
90 %
of Star Corporation on 1/2018. Fair values of Star's assets and liabilities
approximated book values on that date. Pearl uses the initial value method
to account for its investment in Star.
On 1/2019, Pearl bought equipment from Star for $60,000 that
$ 110,000
had originally cost Star $120,000 and had
of Accumulated depreciation at the time. The equipment had a five-year
remaining life and was being depreciated using the straight line method.
You are preparing the worksheet for the 2020 fiscal year.
d. How much excess depreciation will there be in each of the first five years
after the transfer?
e. Pearl's 2020 net income, without including any investment income, was
$ 440,000 and Star reported net income of
What consolidated income will be reported before removing the noncontrolling
$ 135,000 in 2020.
interest's share of the subsidiary's net income? (This includes the effect
of the ED entry.)
f. What will the noncontrolling interest's share of the subsidiary's net income be for
2020? (Consider whether the equipment sale had been upstream or downstream.)
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