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ANSWERS TO by benbenzhou

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									                                         CHAPTER 7
Exercise 7-2 (Additional Requirement at end)
2008
Net Income of Polar Company                                                        $400,000
Polar Company’ share of income of Superior Company                                   160,000
Less Gain                                                                           (160,000)
Plus Decrease in Depreciation Expense                                                 20,000
Controlling Interest in consolidated net income                                    $420,000

$560,000 - $400,000 = $160,000 (intercompany gain)
$160,000/8= $20,000 (reduction in depreciation expense)

2009
Net Income of Polar Company                                                        $400,000
Polar Company’s share of income of Superior Company                                 160,000
Plus Decrease in Depreciation Expense                                                20,000
Controlling Interest in consolidated net income                                    $580,000


Added Requirement: Assume Superior sold the equipment to outsiders on 12/31/11 for $250,000.
                   Prepare the applicable 2011 worksheet entry.

2011
RE-P                          100,000
       Loss on Sale (S - reverse)           30,000
       Gain on Sale (Consolidated s/b)      50,000
       Depreciation Expense (11)            20,000


Exercise 7-3
Cost of equipment                                                                 $ 300,000
Accumulated Depreciation ($300,000  5 years)                               150,000
Book value 1/1 2008                                                                 150,000
Proceeds from sale                                                                  200,000
Gain on sale                                                                       $ 50,000

Part A 2008
       (1) Gain on Sale of Equipment                                  50,000
                Equipment                                                      150,000

        (2) Accumulated Depreciation – Equipment                      10,000
                Depreciation Expense ($50,000/5)                                10,000




                                                7-1
Exercise 7-3 (continued)
2009
        (1) Retained Earnings – Pearson (.9$50,000)                      45,000
            Retained Earnings – Spring (.1$50,000)                        5,000
                  Equipment                                                          150,000

          (2) Accumulated Depreciation – Equipment                          20,000
                  Depreciation Expense                                                10,000
                  Retained Earnings – Pearson (.9$10,000)                           9,000
                  Retained Earnings – Spring (.10$10,000)                           1,000

Part B Controlling Interest in consolidated Net Income for 2009
            = $150,000 + .9($100,000 + $10,000) = $249,000


Problem 7-3 (Altered Instructions for Part A; Additional Requirement at end)
Intercompany sale of equipment
                                                                      Remaining
                                                     Carrying Value        life Depreciation
  Carrying Value – original party                        $ 450,000        6 yr  $ 75,000
  Intercompany Selling Price                               600,000        6 yr   100,000
  Difference                                             $ 150,000              $ 25,000

Part A (Altered instructions: Prepare worksheet entries for 2008)

(1)      Gain on Sale of Equipment   150,000
                Equipment                  150,000

(2)      Accumulated Depreciation  25,000
              Depreciation Expense        25,000



Part B                                                          P Company       Consolidated
            Cost                                               $600,000           $ 450,000
            Accumulated Depreciation                           (100,000)           ( 75,000)
            1/1/2009 Book Value                                 500,000           $ 375,000
            Proceeds                                            550,000             550,000
            Gain                                                $50,000           $ 175,000

         Retained Earnings - P Company (.8$125,000)                        100,000
         Retained Earnings - S Company (.2$125,000)                         25,000
         Gain on Sale of Equipment (P – reverse)                               50,000
                Gain on Sale of Equipment (Consolidated s/b)                              175,000




                                                7-2
Problem 7-3 (continued)

Added Requirement: Now assume that P Company sold to outsiders on 12/31/09 for $425,000
(instead of as stated in Part B)

                                                              P Company     Consolidated
          Cost                                               $600,000         $ 450,000
          Accumulated Depreciation                           (200,000)        ( 150,000)
          12/31/2009 Book Value                               400,000         $ 300,000
          Proceeds                                            425,000           425,000
          Gain                                                $25,000         $ 125,000


Retained Earnings - P Company (.8$125,000)                             100,000
Retained Earnings - S Company (.2$125,000)                              25,000
Gain on Sale of Equipment (P – reverse)                                    25,000
              Gain on Sale of Equipment (Consolidated s/b)                          125,000
              Depreciation Expense (09)                                              25,000




                                              7-3

								
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