Professional Documents
Culture Documents
Pipe Match
Selected Income Statement Amounts:
Sales $710,000 $530,000
Cost of Goods Sold 490,000 370,000
Gain on Sale of Equipment 21,000
Earnings from Investment in Subsidiary 61,000
Interest Revenue 2,880
Interest Expense 2,880
Depreciation 25,000 20,000
Additional Information:
On January 2, 20X3 Pipe purchased 90% of Match for $155,000. On that date Match's shareholders' equity equaled $150,000 and the fair values of
Match's assets and liabilities equaled their carrying amounts. Excess, if any, is attributed to patents and is amortized over 10 years.
On September 4, 20X3 Match paid cash dividends of $30,000.
On January 3, 20X3 Match sold equipment with an original cost of $30,000 and a carrying value of $15,000 to Pipe for $36,000. The equipment had
a remaining useful life of 3 years. Straight-line depreciation is used.
On January 4, 20X3 Match signed an 8% Note Payable. All interest payments were made as of December 31, 20X3.
During the year Match sold merchandise to Pipe for $60,000, which included a profit of $20,000. At year end 50% of the merchandise remained in
Pipe's inventory.
Required:
1. Which method is Pipe using to account for the investment in Match? How do you know?
2. What elimination entry(ies) are associated with the elimination of intercompany profits due to the sale of
merchandise?
3. What elimination entry(ies) are necessary with the sale of equipment by Match to Pipe?
4. What elimination entry(ies) are associated with the note to Match? Why are the entry(ies) made?
ANS:
1. Sophisticated Equity:
Match Net Income $63,000
Amortization of patent (2,000)
Earnings from Investment in subsidiary $61,000
2. Sales 60,000
Cost of Goods Sold 60,000
The note receivable and payable, and the associated interest revenue and expense should not be included on the
consolidated financial statements.
2. On January 1, 20X1, Prange Company acquired 100% of the common stock of Seaman Company for $600,000. On this date Seaman had total
owners' equity of $400,000. Any excess of cost over book value is attributable to a patent, which is to be amortized over 10 years.
During 20X1 and 20X2, Prange has appropriately accounted for its investment in Seaman using the simple equity method.
On January 1, 20X2, Prange held merchandise acquired from Seaman for $30,000. During 20X2, Seaman sold merchandise to Prange for $100,000,
of which $20,000 is held by Prange on December 31, 20X2. Seaman's gross profit on all sales is 40%.
On December 31, 20X2, Prange still owes Seaman $20,000 for merchandise acquired in December.
Required:
Complete the Figure 4-1 worksheet for consolidated financial statements for the year ended December 31, 20X2.
4-2
ANS:
For the worksheet solution, please refer to Answer 4-1.
Answer 4-1
Trial Balance Eliminations and
Prange Seaman Adjustments
Account Titles Company Company Debit Credit
Inventory, December 31 100,000 105,000 (EI) 8,000
Other Current Assets 207,000 325,000 (IA) 20,000
Investment in Sub. Company 710,000 (CY) 60,000
(EL) 450,000
(D) 200,000
4-3
Consol. Control. Consol.
Income Retained Balance
Account Titles Statement NCI Earnings Sheet
Inventory, December 31 197,000
Other Current Assets 512,000
Investment in Sub. Company 0
Land 220,000
Buildings and Equipment 655,000
Accumulated Depreciation (350,000)
Patent 180,000
Subsidiary Income 0
Dividends DeclaredP Co. 60,000
Dividends DeclaredS Co.
4-4
Eliminations and Adjustments:
(CY) Eliminate the current-year entries made in the investment account and in the subsidiary income account.
(EL) Eliminate the Seaman Company equity balances at the beginning of the year against the investment
account.
(D) Distribute the $200,000 excess of cost over book value to patent.
(A) Amortize the patent over 10 years, with $20,000 for 20X1 charged to retained earnings, and $20,000 for
20X2 to operating expenses.
3. On January 1, 20X1, Prange Company acquired 80% of the common stock of Seaman Company for $500,000. On this date Seaman had total owners'
equity of $400,000. Any excess of cost over book value is attributable to patent, which is to be amortized over 20 years.
During 20X1 and 20X2, Prange has appropriately accounted for its investment in Seaman using the simple equity method.
On January 1, 20X2, Prange held merchandise acquired from Seaman for $30,000. During 20X2, Seaman sold merchandise to Prange for $100,000,
of which $20,000 is held by Prange on December 31, 20X2. Seaman's gross profit on all sales is 40%.
On December 31, 20X2, Prange still owes Seaman $20,000 for merchandise acquired in December.
Required:
Complete the Figure 4-2 worksheet for consolidated financial statements for the year ended December 31, 20X2.
4-5
ANS:
For the worksheet solution, please refer to Answer 4-2.
Answer 4-2
Trial Balance Eliminations and
Prange Seaman Adjustments
Account Titles Company Company Debit Credit
Inventory, December 31 100,000 105,000 Debit (EI) 8,000
Other Current Assets 285,000 325,000 (IA) 20,000
Investment in Sub. Company 588,000 (CY) 48,000
(EL) 360,000
(D) 180,000
4-6
Consol. Control. Consol.
Income Retained Balance
Account Titles Statement NCI Earnings Sheet
Inventory, December 31 197,000
Other Current Assets 590,000
Investment in Sub. Company 0
Land 220,000
Buildings and Equipment 655,000
Accumulated Depreciation (382,000)
Patent 262,500
Subsidiary Income 0
Dividends DeclaredP Co. 60,000
Dividends DeclaredS Co. 6,000
(CY) Eliminate the current-year entries made in the investment account and in the subsidiary income account.
(EL) Eliminate 80% of the Seaman Company equity balances at the beginning of the year against the investment
account.
(D) Distribute the $225,000 excess of cost over book value to patent to Parent and NCI
(A) Amortize the patent over 20 years, with $11,250 for 20X1 charged to retained earnings of Parent and Sub,
and $11,250 for 20X2 to operating expenses.
4-7
(IS) Eliminate the entire intercompany sales of $100,000.
4. Selected information from the separate and consolidated balance sheets and income statements of Palo Alto, Inc. and its subsidiary, Stanford Co., as
of December 31, 20X1, and for the year then ended is as follows:
Additional information:
During 20X1, Palo Alto sold goods to Stanford at the same markup on cost that Palo Alto uses for all sales. At December 31, 20X1, Stanford had not
paid for all of these goods and still held 50% of them in inventory.
Palo Alto acquired its interest in Stanford five years earlier (as of December 31, 20X1).
Required:
For each of the following items, calculate the required amount.
a. The amount of intercompany sales from Palo Alto to Stanford during 20X1.
b. The amount of Stanford's payable to Palo Alto for intercompany sales as of December 31, 20X1.
c. In Palo Alto's December 31, 20X1, consolidated balance sheet, the carrying amount of the inventory that
Stanford purchased from Palo Alto.
ANS:
a. $200,000 + $140,000 - X = $300,000; X = $40,000
b. $26,000 + $19,000 - X = $42,000; X = $3,000
c. Intercompany sales = $40,000
50% held as ending interco inventory $20,000
Gross profit (25%) (5,000)
Cost of interco ending inventory $15,000
No dividends were paid by either firm during 20X6. The following trial balances were prepared for Pinto Company and its subsidiary, Sands Inc., on
December 31, 20X6:
Pinto Sands
Cash 120,000 70,000
Accounts receivable 240,000 197,000
Inventory 200,000 176,000
Land 600,000 180,000
Buildings and equipment 1,100,000 800,000
Accumulated depreciation (180,000) (120,000)
Investment in Sands 1,000,000
Accounts payable (110,000) (50,000)
Common stock, $10 par (800,000) (100,000)
Paid-in capital in excess of par (660,000) (400,000)
Retained earnings (1,340,000) (650,000)
Sales (600,000) (300,000)
Other income (40,000) (15,000)
Cost of goods sold 320,000 180,000
Other expenses 150,000 32,000
Total - -
Sands sold a machine to Pinto Company for $40,000 on January 1, 20X6. The machine cost Sands $50,000, and $25,000 of accumulated depreciation
had been recorded as of the sale date. The machine had a 5-year remaining life and no salvage value. Pinto Company is using straight-line
depreciation.
Since the purchase date, Pinto has sold merchandise for resale to Sands, Inc. at a mark-up on cost of 25%. Sales during 20X6 were $150,000. The
inventory of these goods held by Sands was $15,000 on January 1, 20X6, and $18,000 on December 31, 20X6.
Required:
Prepare a consolidated income statement for 20X6, including income distribution schedules to support your distribution of income to the
noncontrolling and controlling interest interests.
ANS:
4-9
of machine $15,000 net income $103,000
Gain on sale of machine
realized through use 3,000
Adjusted income $ 91,000
Noncontrolling share 20%
Noncontrolling interest $ 18,200
6. On January 1, 20X1, Parent Company acquired 100% of the common stock of Subsidiary Company for $750,000. On this date Subsidiary had total
owners' equity of $540,000.
Any excess of cost over book value is attributable to land, undervalued $10,000, and to goodwill.
During 20X1 and 20X2, Parent has appropriately accounted for its investment in Subsidiary using the simple equity method.
On January 1, 20X2, Parent held merchandise acquired from Subsidiary for $10,000. During 20X2, Subsidiary sold merchandise to Parent for
$100,000, of which $20,000 is held by Parent on December 31, 20X2. Subsidiary's usual gross profit on affiliated sales is 40%.
On December 31, 20X2, Parent still owes Subsidiary $20,000 for merchandise acquired in December.
On January 1, 20X2, Parent sold to Subsidiary some equipment with a cost of $50,000 and a book value of $20,000. The sales price was $40,000.
Subsidiary is depreciating the equipment over a five-year life, assuming no salvage value and using the straight-line method.
Required:
Complete the Figure 4-3 worksheet for consolidated financial statements for the year ended December 31, 20X2.
ANS:
For the worksheet solution, please refer to Answer 4-3.
Answer 4-3
Trial Balance Eliminations and
Parent Sub. Adjustments
Account Titles Company Company Debit Credit
Inventory, December 31 100,000 80,000 (EI) 8,000
Other Current Assets 139,000 450,000 (IA) 20,000
Investment in Sub. Company 880,000 (CY) 70,000
(EL) 600,000
(D) 210,000
Other Long-Term Investments 50,000 30,000
Land 140,000 70,000 (D) 10,000
Buildings and Equipment 315,000 400,000 (F1) 20,000
Accumulated Depreciation (280,000) (110,000) (F2) 4,000
Goodwill 200,000
Other Intangibles 60,000
Current Liabilities (230,000)
Bonds Payable (100,000)
Premium on Bonds Payable (5,000)
Other Long-Term Liabilities (350,000)
Common Stock P Co. (200,000)
Other Paid in Capital P Co. (100,000)
Retained Earnings P Co. (475,000)
Common Stock S Co.
Other Paid in Capital S Co.
Retained Earnings S Co.
4-11
Subsidiary Income 0
(CY) Eliminate the current-year entries made in the investment account and in the subsidiary income account.
(EL) Eliminate the Subsidiary Company equity balances at the beginning of the year against the investment
account.
(D) Distribute the $210,000 excess of cost over book value land ($10,000) and to goodwill.
(F2) Eliminate the $4,000 of excess depreciation for 20X2 on the transferred equipment.
7. On January 1, 20X1, Parent Company acquired 80% of the common stock of Subsidiary Company for $560,000. On this date Subsidiary had total
owners' equity of $540,000, including retained earnings of $240,000. During 20X1, Subsidiary had net income of $60,000 and paid no dividends.
Any excess of cost over book value is attributable to land, undervalued $10,000, and to goodwill.
During 20X1 and 20X2, Parent has appropriately accounted for its investment in Subsidiary using the cost method.
On January 1, 20X2, Parent held merchandise acquired from Subsidiary for $10,000. During 20X2, Subsidiary sold merchandise to Parent for
$100,000, of which $20,000 is held by Parent on December 31, 20X2. Subsidiary's usual gross profit on affiliated sales is 40%.
On December 31, 20X2, Parent still owes Subsidiary $20,000 for merchandise acquired in December.
On January 1, 20X2, Parent sold to Subsidiary some equipment with a cost of $50,000 and a book value of $20,000. The sales price was $40,000.
Subsidiary is depreciating the equipment over a five-year life, assuming no salvage value and using the straight-line method.
Required:
4-12
ANS:
For the worksheet solution, please refer to Answer 4-4.
Answer 4-4
Trial Balance Eliminations and
Parent Sub. Adjustments
Account Titles Company Company Debit Credit
Inventory, December 31 100,000 80,000 (EI) 8,000
Other Current Assets 253,000 450,000 (IA) 20,000
Investment in Sub. Company 560,000 (CV) 48,000 (EL) 480,000
(D) 128,000
Other Long-Term Investments 50,000 30,000
Land 140,000 70,000 (D) 10,000
Buildings and Equipment 315,000 400,000 (F1) 20,000
Accumulated Depreciation (208,000) (110,000) (F2) 4,000 30,000
4-13
Consol. Control. Consol.
Income Retained Balance
Account Titles Statement NCI Earnings Sheet
Inventory, December 31 172,000
Other Current Assets 683,000
Investment in Sub. Company 0
Goodwill 150,000
Other Intangibles 60,000
Current Liabilities (230,000)
Bonds Payable (100,000)
Premium on Bonds Payable (5,000)
Other Long-Term Liabilities (350,000)
Common Stock P Co. (200,000)
Other Paid in Capital P Co. (100,000)
Retained Earnings P Co. (465,800)
Dividend Income 0
(CV) Convert to the simple equity method as of January 1, 20X2. (80% of $60,000 increase in subs retained
earnings from January 1, 20X1 to January 1, 20X2.)
(CY2) Eliminate the current-year dividend income against dividends declared by Subsidiary.
(EL) Eliminate 80% of the Subsidiary Company equity balances at the beginning of the year against the
investment account.
(D) Distribute the $150,000 excess of cost over book value to land ($8,000) and to goodwill; allocate to
Parent and Sub $128,000 and $32,000 respectively.
(BI) Eliminate the $4,000 of gross profit in the beginning inventory; allocate to Parent and Sub 80/20
4-14
(IS) Eliminate the entire intercompany sales of $100,000.
(F2) Eliminate the $4,000 of excess depreciation for 20X2 on the transferred equipment.
Scenario 4-2:
On January 1, 20X1, Powers Company acquired 80% of the common stock of Sculley Company for $195,000. On this date Sculley had total owners'
equity of $200,000 (common stock, other paid-in capital, and retained earnings of $10,000, $90,000, and $100,000 respectively).
Any excess of cost over book value is attributable to inventory (worth $6,250 more than cost), to equipment (worth $12,500 more than book value),
and to patents. FIFO is used for inventories. The equipment has a remaining life of five years and straight-line depreciation is used. The excess to the
patents is to be amortized over 20 years.
On July 1, 20X2 Sculley borrowed $100,000 from Powers with a 10% 1-year note; interest is due at maturity.
On January 1, 20X2, Powers held merchandise acquired from Sculley for $10,000. During 20X2, Sculley sold merchandise to Powers for $50,000,
$20,000 of which is still held by Powers on December 31, 20X2. Sculley's usual gross profit on affiliated sales is 50%.
On December 31, 20X1, Powers sold equipment to Sculley at a gain of $10,000. During 20X2, the equipment was used by Sculley. Depreciation is
being computed using the straight-line method, a five-year life, and no salvage value.
8. Refer to Scenario 4-2. Assume that during 20X1 and 20X2, Powers has appropriately accounted for its investment in Sculley using the cost method.
Required:
a. Using the information above or on the Figure 4-5 worksheet, prepare a determination and distribution of excess
schedule.
b. Complete the Figure 4-5 worksheet for consolidated financial statements for the year ended December 31, 20X2.
a.
Determination and distribution of excess schedule:
Entity Parent NCI
Entity FV 243,750 195,000 48,750
Book value:
Pd-In Capt 100,000
RE 1/1/X1 100,000
Book value: 200,000 160,000 40,000
Excess 43,750 35,000 8,750
Inventory 6,250
Equipment 12,500
Patent 25,000
Total excess distributed 43,750
4-15
Equipment 2,500 2,500 5,000
Patent 1,250 1,250 2,500
3,750 3,750
P share 3,000
NCI share 750
*adjusted to respective R/E accounts
** adjusted to respective asset (or contra asset) accounts
Answer 4-5
Trial Balance Eliminations and
Powers Sculley Adjustments
Account Titles Company Company Debit Credit
Inventory, December 31 145,000 55,000 (EI) 10,000
Other Current Assets 249,000 205,000 (LN1) 105,000
Investment in Sub. Company 195,000 (CV) 40,000 (EL) 200,000
(D) 35,000
Land 240,000
Buildings and Equipment 602,500
Accumulated Depreciation (203,000)
Patents 22,500
Interest Revenue 0
Interest Expense 0
Dividend Income 0
Dividends Declared P Co. 60,000
Dividends Declared S Co. 6,000
(CV) Convert to the simple equity method as of January 1, 20X2 (80% of $50,000 increase in retained
earnings from January 1, 20X1 to January 1, 20X2).
(CY2) Eliminate the current-year dividend income against dividends declared by Sculley.
(EL) Eliminate 80% of the Sculley Company equity balances at the beginning of the year against the
investment account.
4-17
(D) Distribute the $43,750 excess of cost over book value to inventory, equipment, and patent; allocate to
Parent and Sub $35,000 and $8,750 respectively
NOTE: The $6,250 write up to inventory is charged to the two Retained Earnings accounts 80:20 since
FIFO is used.
(A) Amortize the equipment write up over 5 years and the patent over 20 years. Current amounts charged to
operating expense; prior years amount allocated to Parent and Sub; totals recorded as adjustments to the
asset (or related contra account)
(LN1) Eliminate $100,000 intercompany notes receivable and notes payable and $5,000 intercompany interest
receivable and interest payable ($100,000 10% 6 months)
(BI) Eliminate the $5,000 of gross profit in the beginning inventory; allocate to Parent and Sub
(F2) Eliminate the $2,000 of excess depreciation for 20X2 on the transferred equipment.
4-18
Subsidiary Company Income Distribution Schedule
Amort of equip restatement 2,500 Internally generated net income 100,000
Amort of patent revaluation 1,250 Realized profit in beginning inventory 5,000
Deferred profit in ending inven 10,000
Adjusted income 91,250
NCI Share 20%
NCI 18,250
9. Refer to Scenario 4-2. Assume that during 20X1 and 20X2, Powers has appropriately accounted for its investment in Sculley using the simple equity
method.
Required:
a. Using the information above or on the Figure 4-6 worksheet, prepare a determination and distribution of excess
schedule.
b. Complete the Figure 4-6 worksheet for consolidated financial statements for the year ended December 31,
20X2.
Figure 4-6
Trial Balance Eliminations and
Powers Sculley Adjustments
Account Titles Company Company Debit Credit
Inventory, December 31 140,000 65,000
Other Current Assets 250,000 225,000
Investment in Sub. Company 259,000
4-19
Operating Expenses 150,000 70,000
Land
Buildings and Equipment
Accumulated Depreciation
Current Liabilities
Bonds Payable
Other Long-Term Liabilities
Common Stock P Co.
Other Paid in Capital P Co.
Retained Earnings P Co.
Net Sales
Cost of Goods Sold
Operating Expenses
Interest Revenue
Interest Expense
Subsidiary Income
4-20
ANS:
D&D Schedule Entity Parent NCI
Entity FV 243,750 195,000 48,750
Book value:
Pd-In Capt 100,000
RE 1/1/X1 100,000
Book value: 200,000 160,000 40,000
Excess 43,750 35,000 8,750
Inventory 6,250
Equipment 12,500
Patent 25,000
Total excess distributed 43,750
Answer 4-6
Trial Balance Eliminations and
Powers Sculley Adjustments
Account Titles Company Company Debit Credit
Inventory, December 31 140,000 65,000 (EI) 10,000
Other Current Assets 250,000 225,000 (LN1) 105,000
Investment in Sub. Company 315,000 (CY) 80,000
(EL) 200,000
(D) 35,000
Land 140,000 100,000
Buildings and Equipment 400,000 200,000 (D) 12,500 (F1) 10,000
Accumulated Depreciation (150,000) (50,000) (F2) 2,000 (A) 5,000
Land 240,000
Buildings and Equipment 602,500
Accumulated Depreciation (203,000)
Patents 22,500
Interest Revenue 0
Interest Expense 0
Subsidiary Income 0
(EL) Eliminate 80% of the Sculley Company equity balances at the beginning of the year against the
investment account.
(D) Distribute the $43,750 excess of cost over book value to inventory, equipment, and patent; allocate to
Parent and Sub $35,000 and $8,750 respectively
NOTE: The $6,250 write up to inventory is charged to the two Retained Earnings accounts 80:20 since
FIFO is used.
(A) Amortize the equipment write up over 5 years and the patent over 20 years. Current amounts charged to
operating expense; prior years amount allocated to Parent and Sub; totals recorded as adjustments to the
asset (or related contra account)
(LN1) Eliminate $100,000 intercompany notes receivable and notes payable and $5,000 intercompany interest
receivable and interest payable ($100,000 10% _ 6 months)
(BI) Eliminate the $5,000 of gross profit in the beginning inventory; allocate to Parent and Sub
(F2) Eliminate the $2,000 of excess depreciation for 20X2 on the transferred equipment.
4-23
Subsidiary Company Income Distribution Schedule
Amort of equip restatement 2,500 Internally generated net income 100,000
Amort of patent revaluation 1,250 Realized profit in beginning inventory 5,000
Deferred profit in ending inven 10,000
Adjusted income 91,250
NCI Share 20%
NCI 18,250
10. On January 1, 20X1, Pep Company acquired 80% of the common stock of Sky Company for $195,000. On this date Sky had total owners' equity of
$200,000 (common stock, other paid-in capital, and retained earning of $10,000, $90,000, and $100,000 respectively).
Any excess of cost over book value is attributable to inventory (worth $6,250 more than cost), to equipment (worth $12,500 more than book value),
and to patents. FIFO is used for inventories. The equipment has a remaining life of five years and straight-line depreciation is used. The excess
attributable to the patents is to be amortized over 20 years.
During 20X1 and 20X2, Pep has appropriately accounted for its investment in Sky using the simple equity method.
On January 1, 20X2, Pep held merchandise acquired from Sky for $10,000. During 20X2, Sky sold merchandise to Pep for $50,000, $20,000 of
which is still held by Pep on December 31, 20X2. Sky's usual gross profit on affiliated sales is 50%.
On December 31, 20X1, Pep sold equipment to Sky at a gain of $10,000. During 20X2, the equipment was used by Sky. Depreciation is being
computed using the straight-line method, a five-year life, and no salvage value.
Required:
a. Using the information above or on the Figure 4-8 worksheet, prepare a determination and distribution of excess
schedule.
b. Complete the Figure 4-8 worksheet for consolidated financial statements for the year ended December 31,
20X2.
4-24
Figure 4-8
Trial Balance Eliminations and
Pep Sky Adjustments
Statement - Accounts Company Company Debit Credit
Income Statement: Debit
Net Sales (610,000) (365,000)
Cost of Goods Sold 360,000 190,000
Consol.
4-25
Financial
Statement - Accounts NCI Statements
Income Statement:
Net Sales
Cost of Goods Sold
Operating Expenses
Subsidiary Income
NCI in Income
Net Income
Land
Building and Equipment
Accumulated Depreciation
Current Liabilities
Bonds Payable
Other Long-Term Liabilities
Common Stock P Co.
Other Paid in Capital P Co.
Common Stock S Co.
Other Paid in Capital S Co.
ANS:
D&D Schedule Entity Parent NCI
Entity FV 243,750 195,000 48,750
Book value:
Pd-In Capt 100,000
4-26
RE 1/1/X1 100,000
Book value: 200,000 160,000 40,000
Excess 43,750 35,000 8,750
Inventory 6,250
Equipment 12,500
Patent 25,000
Total excess distributed 43,750
Optional amortization schedule:
Current Exp Prior* Total**
Equipment 2,500 2,500 5,000
Patent 1,250 1,250 2,500
3,750 3,750
P share 3,000
NCI share 750
*adjusted to respective R/E accounts
**adjusted to respective asset (or contra asset) accounts
Answer 4-8
Trial Balance Eliminations and
Pep Sky Adjustments
Statement - Accounts Company Company Debit Credit
Income Statement: Credit
Net Sales (610,000) (365,000) (IS) 50,000
Cost of Goods Sold 360,000 190,000 (EI) 10,000 (BI) 5,000
(IS) 50,000
Operating Expenses 150,000 70,000 (A) 3,750 (F2) 2,000
4-27
Patents (D) 25,000 (A) 2,500
4-28
Consol.
Financial
Statement - Accounts NCI Statements
Income Statement:
Net Sales (925,000)
Cost of Goods Sold 505,000
Subsidiary Income 0
Net Income (198,250)
Distribution ( see IDS) (19,250) (179,000)
Land 240,000
Building and Equipment 602,500
Accumulated Depreciation (203,000)
Patents 22,500
4-29
Eliminations and Adjustments:
(CY) Eliminate the current-year entries made in the investment account and the subsidiary income account.
(EL) Eliminate 80% of the Sky Company equity balances at the beginning of the year against the investment
account.
(D) Distribute the $43,750 excess of cost over book value to inventory, equipment, and patent; allocate to
Parent and Sub $35,000 and $8,750 respectively
NOTE: The $6,250 write up to inventory is charged to the two Retained Earnings accounts 80:20 since
FIFO is used.
(A) Amortize the equipment write up over 5 years and the patent over 20 years. Current amounts charged to
operating expense; prior years amount allocated to Parent and Sub; totals recorded as adjustments to the
asset (or related contra account)
(BI) Eliminate the $5,000 of gross profit in the beginning inventory; allocate to Parent and Sub
(F2) Eliminate the $2,000 of excess depreciation for 20X2 on the transferred equipment.
4-30