Problem 3 Peter Company acquired 90 % of Steven Corporation on 1/2018. Fair values of Steven's assets and liabilities approximated book values on that date. Peter uses the initial value method to account for its investment in Steven. On 1/2019, Peter bought equipment from Steven for $60,000 that had originally cost Steven $120,000 and had $ 110,000 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. a. Was this equipment sale upstream or downstream? b. How much unrealized net gain from the equipment transfer remains at the beginning of 2020? (this is the amount you will need for the "TA entry at 1/2020.) c. Which company's Retained earnings account will be adjusted in the "TA entry in part a? (Which company was the "initiator" of the transaction?) d. How much excess depreciation will there be in each of the first five years after the transfer? e. Peter's 2020 net income, without including any investment income, was $ 440,000 and Steven reported net income of $ 137,000 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.)

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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Parts e and f are wrong! below is the reason why these parts were wrong:

"I would like you to write out the ED entry so you can see that it decreases depreciation expense. It has a credit to an expense account, which decreases the expense account balance. Therefore, it would not reduce consolidated income, it would increase it. The subsidiary's reported income is separately affected by the ED entry before taking the noncontrolling interest share."

Plz, help me!

А
В
а.
Upstream
b. Book value (120,000 - 110,000)
10,000
Transfer price
60,000
Unrealized gain
50,000
Excess depreciation
10,000
Unrealized Net Gain
40,000
C.
Steven Corporation
d. Carrying Value before sale
10,000
Useful Life
Depreciation before no transfer
$2,000
Transfer Value
60,000
Useful Life
5
Depreciation after transfer
$12,000
Excess Depreciation (12,000 -2,000)
$
10,000
е.
Peter's 2020 net income
440,000
Steven's 2020 net income
137,000
Excess Depreciation
127,000
567,000
-10,000
Total Consolidated Income
f. Noncontrolling interest income (127,000 * 10%) $
12,700

Problem 3
Peter Company acquired
90 %
of Steven Corporation on 1/2018. Fair values of Steven's assets and liabilities
approximated book values on that date. Peter uses the initial value method
to account for its investment in Steven.
On 1/2019, Peter bought equipment from Steven for $60,000 that
had originally cost Steven $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
a. Was this equipment sale upstream or downstream?
b. How much unrealized net gain from the equipment transfer remains at the
beginning of 2020? (this is the amount you will need for the "TA entry at 1/2020.)
c. Which company's Retained earnings account will be adjusted in the "TA entry
in part a? (Which company was the "initiator" of the transaction?)
d. How much excess depreciation will there be in each of the first five years
after the transfer?
e. Peter's 2020 net income, without including any investment income, was
$ 440,000 and Steven reported net income of
$ 137,000 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.)

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