Concept explainers
Concept Introduction:
The intercompany transactions occur when the unit of legal entity is having transactions with another unit of the similar entity. This transaction can be divided into two categories such as direct and indirect intercompany transfer. The direct transfer occurs when there is transfer between the different units of the same entity and indirect transfer occurs when the unit of entity acquires debt or assets issued to unrelated entity through another unit of the same entity. This type of transfer will help the entity in improving the flow of finance and asset in efficient manner.
Requirement 1
The change in the amount of net income when intercompany services are eliminated in preparing the consolidated statement.
Concept Introduction:
The intercompany transactions occur when the unit of legal entity is having transactions with another unit of the similar entity. This transaction can be divided into two categories such as direct and indirect intercompany transfer. The direct transfer occurs when there is transfer between the different units of the same entity and indirect transfer occurs when the unit of entity acquires debt or assets issued to unrelated entity through another unit of the same entity. This type of transfer will help the entity in improving the flow of finance and asset in efficient manner.
Requirement 2
The impact of eliminating the intercompany service on the consolidated net income when entity is owing 100% of the other entity.
Concept Introduction:
The intercompany transactions occur when the unit of legal entity is having transactions with another unit of the similar entity. This transaction can be divided into two categories such as direct and indirect intercompany transfer. The direct transfer occurs when there is transfer between the different units of the same entity and indirect transfer occurs when the unit of entity acquires debt or assets issued to unrelated entity through another unit of the same entity. This type of transfer will help the entity in improving the flow of finance and asset in efficient manner.
Requirement 3
We have to determine the cost of providing health care services to its own employees..
Want to see the full answer?
Check out a sample textbook solutionChapter 7 Solutions
EBK ADVANCED FINANCIAL ACCOUNTING
- Problems 12 and 13 relate to the following:On May 1, Donovan Company reported the following account balances:On May 1, Beasley paid $400,000 in stock (fair value) for all of the assets and liabilities of Donovan, which will cease to exist as a separate entity. In connection with the merger, Beasley incurred $15,000 in accounts payable for legal and accounting fees.Beasley also agreed to pay $75,000 to the former owners of Donovan contingent on meeting certain revenue goals during the following year. Beasley estimated the present value of its probability adjusted expected payment for the contingency at $20,000. In determining its offer, Beasley noted the following:• Donovan holds a building with a fair value $30,000 more than its book value.• Donovan has developed unpatented technology appraised at $25,000, although is it not recorded in its financial records.• Donovan has a research and development activity in process with an appraised fair value of $45,000. The project has not yet…arrow_forwardPearson company owns 42% of Stadium corporation. Pearson has a basis in the stock of Stadium corporation for $13,000 and in a note recievable from the Stadium corporation of $9,000. Instructions: calculate the basis of the stock, the basis in the note and the amount of the ordinary loss and income that Pearson must report in 2021 and 2022 a. The Stadium corporation has a net operating loss of $46,000 in year 2021. b. The Stadium corporation has net operating income of $17,000 in year 2022. They also made a distribution of $11,000.arrow_forwardobita Corporation has two business segments, Segment A and Segment B. Segment A's business operation is continuing. Segment B met the criteria to be classified as "held for sale". The board of directors was able to dispose this segment (B) on September 1, 2021. Net proceeds from the sale were P20,000,000; while the segments' carrying amount on September 1, 2021 was P18,000,000. The following pertains to the results of the operations of Segment A & B during 2021: Segment A Segment B January 1 - December 31, 2021 January 1 - December 31, 2021 Revenue 25,000,000 2,000,000 Selling and general expenses. 15,000,000 15,000,000 Income tax 35% Problem 1) How much shall be presented as Discontinued operations on the face of the income statement? Problem 2) How much shall be presented as…arrow_forward
- Company S is 80% owned by Company P. Near the end of 2015, Company S sold merchandise with a cost of $6,000 to Company P for $7,000. Company P sold the merchandise to a nonaffiliated firm in 2016 for $10,000. How much total profit should be recorded on the consolidated income statements in 2015 and 2016? How much profit should be awarded to the controlling and noncontrolling interests in 2015 and 2016?arrow_forwardAt the beginning of the year, Loxus Corporation had E & P of $205,000. On March 30, Teal sold an asset at a loss of $201,000. For the calendar year, Loxus incurred a deficit in current E & P of $300,000, which includes the $210,000 loss on the sale of the asset. If Loxu made a distribution of $50,000 to its sole shareholder on April 1 and the shareholder had a basis in her stock of $70,000, how will the shareholder be taxed?arrow_forwardManna Ltd. enters into a business combination with Noah Inc. in which Manna purchases all of the identifiable assets and liabilities of Noah Inc. To effect the business combination, Manna issued 50,000 of its common shares currently trading at $8.00 per share for all of Noah's net identifiable assets. Manna is considered to be the clear acquirer. Costs associated with the business combination are: Legal, appraisal, and finders' fees $5,000 Costs of issuing shares 7,000 $12,000 Balance sheet data for the two companies immediately before the business combination are below: Manna Ltd. Book Value Noah Inc. Book Value Fair Value Cash $ 140,000 $ 52,500 $ 52,500 Accounts Receivable 167,200 61,450 56,200 Inventory 374,120 110,110 134,220 Land 425,000 75,000 210,000 Buildings (at net) 250,505 21,020 24,020 Equipment (at net) 78,945 17,705 15,945 Total Assets $1,435,770 $337,785 Current Liabilities $ 133,335 $ 41,115 $ 41,115 Non-current Liabilities ------------ 150,000 155,000 Common Shares…arrow_forward
- Wickum Corporation reports under IFRS, and recognized a $500,000 impairment of an HTM debt investment in Right Corporation. Subsequently, the credit loss for Wickum’s investment decreased by $300,000. How would Wickum account for that change?arrow_forwardGrumpy is a 90%-owned subsidiary of Margot Corporation, acquired at book value several years ago. Comparative separate company income statements for these affiliated corporations for 2019 are as follows: Margot Corporation P 750,000 54,000 15,000 P 819,000 P 500,000 150,000 P 650,000 P 169,000 On January 5, 2019 Margot sold a building with a 10-year remaining useful life to Grumpy as a Grumpy Corporation Sales . P350,000 Dividend income Gain on building . Income credits. Cost of sales. Operating expenses. P350,000 P200,000 75,000 P275,000 P 75,000 Income debits . Net income. of P15,000. Grumpy paid dividends of P60,000 during 2019. The Non-controlling interest in net income for 2016:arrow_forwardOn September 17, 2024, Ziltech, Incorporated, entered into an agreement to sell one of its divisions that qualifies as a component of the entity according to generally accepted accounting principles. By December 31, 2024, the company's fiscal year - end, the division had not yet been sold, but was considered held for sale. The net fair value (fair value minus costs to sell) of the division's assets at the end of the year was $10 million. The pretax income from operations of the division during 2024 was $2 million. Pretax income from continuing operations for the year totaled $ 13 million. The income tax rate is 25 %. Ziltech reported net income for the year of $5.1 million. Required: Determine the book value of the division's assets on December 31, 2024.arrow_forward
- 2.On Feb, 1, Johnson Co. agreed to sell the assets of its Formal Wear Division to Sun Hat Inc. The following additional facts pertain to the transaction: The Formal Wear Division qualifies as a component of the entity according to GAAP regarding discontinued operations. The book value of Formal Wear's assets totaled $48 million on December 31, 2021. Formal Wear's operating income was a pre-tax loss of $10 million in 2021. Tango's income tax rate is 25%. Suppose that the Formal Wear Division's assets had not been sold by December 31, 2021, but were considered held for sale. Assume that the fair value of these assets was $40 million at December 31, 2021. In the income statement for the year ended December 31, 2021, Tango Co. would report discontinued operations of: A) $7.5 million loss. B) $10.0 million loss. C) $18 million loss. D) $13.5 million loss. .arrow_forwardOn September 17, 2024, Ziltech, Incorporated, entered into an agreement to sell one of its divisions that qualifies as a component of the entity according to generally accepted accounting principles. By December 31, 2024, the company's fiscal year-end, the division had not yet been sold, but was considered held for sale. The net fair value (fair value minus costs to sell) of the division's assets at the end of the year was $13 million. The pretax income from operations of the division during 2024 was $3 million. Pretax income from continuing operations for the year totaled $16 million. The income tax rate is 25%. Ziltech reported net income for the year of $6.3 million. Required: Determine the book value of the division's assets on December 31, 2024. Note: Enter your answer in whole dollars and not in millions. For example, $4,000,000 rather than $4. Book value of division's assetsarrow_forwardOn September 17, 2024, Ziltech, Incorporated, entered into an agreement to sell one of its divisions that qualifies as a component of the entity according to generally accepted accounting principles. By December 31, 2024, the company's fiscal year-end, the division had not yet been sold, but was considered held for sale. The net fair value (fair value minus costs to sell) of the division's assets at the end of the year was $12 million. The pretax income from operations of the division during 2024 was $3 million. Pretax income from continuing operations for the year totaled $15 million. The income tax rate is 25%. Ziltech reported net income for the year of $5.7 million. Required: Determine the book value of the division's assets on December 31, 2024. Note: Enter your answer in whole dollars and not in millions. For example, $4,000,000 rather than $4. Answer is complete but not entirely correct. Book value of division's assets $9,000,000arrow_forward