Professional Documents
Culture Documents
6-1
Learning Objective 1
6-2
Intercompany Profits on
Nondepreciable Plant Assets
Company P
Company S
Nondepreciable asset
6-3
Intercompany Profits on
Nondepreciable Plant Assets
A transfer at a price other than book
value gives rise to unrealized profit
or loss to the consolidated entity.
Any gain or loss on sales downstream
from parent to subsidiary is initially
included in parent company income
and must be eliminated.
2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
6-4
Intercompany Profits on
Nondepreciable Plant Assets
The amount of elimination is 100%,
regardless of the minority
interest percentage.
Subsidiary accounts include any
profit or loss from upstream sales.
The parent company recognizes only
its share of the subsidiarys income.
2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
6-5
Learning Objective 2
6-6
6-7
Investment in Stan
63,000
Income from Stan
63,000
To record 90% of Stans reported income
6-8
Cash
50,000
Land
40,000
Gain
10,000
To record sale of land to Stan
0ffset
Income from Stan
10,000
Investment in Stan
10,000
To eliminate unrealized profit on land sold to Stan
2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
6-9
Sales
Income from Stan
Gain on sale of land
Expenses
Minority interest expense
($70,000 10%)
Net income
Retained earnings Park
Retained earnings Stan
Add: Net income
Retained earnings 12/31
Park
$380 $220
53
b 53
10
a 10
(300) (150)
c 7
$143 $ 70
$207
$100 d 100
143
70
$350 $170
$600
(450)
(7)
$143
$207
143
$350
6 - 10
Other assets
Land
Investment in Stan
Liabilities
Capital stock
Retained earnings
Minority interest
Park
$477 $350
50
323
a 10
b 53
d 270
$800 $400
$ 50 $ 30
400 200 d 200
350 170
$867
$ 80
400
350
c 7
d 30
$800 $400
$827
40
37
$867
6 - 11
6 - 12
Investment in Stan
63,000
Income from Stan
63,000
To record 90% of Stans reported net income
Income from Stan
9,000
Investment in Stan
9,000
To eliminate 90% of the unrealized profit
on land purchased from Stan
2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
6 - 13
Sales
Income from Stan
Gain on sale of land
Expenses
Minority interest expense
($70,000 10%)
Net income
Retained earnings Park
Retained earnings Stan
Add: Net income
Retained earnings 12/31
Park
$390 $210
54
b 54
10 a 10
(300) (150)
c 6
$144 $ 70
$207
$100 d 100
144
70
$351 $170
$600
(450)
(6)
$144
$207
144
$351
6 - 14
Other assets
Land
Investment in Stan
Liabilities
Capital stock
Retained earnings
Minority interest
Park
$427 $400
50
324
a 10
b 54
d 270
$801 $400
$ 50 $ 30
400 200 d 200
351 170
$867
$ 80
400
351
c 6
d 30
$801 $400
$827
40
36
$867
6 - 15
Downstream Sale of
Depreciable Plant Assets
Perry, Corporation sells machinery to its
80%-owned subsidiary, Soper Corporation,
on December 31, 2003.
Book value: $90,000 $40,000 = $50,000
Perry sold the machine for $80,000.
What are the journal entries?
6 - 16
Downstream Sale of
Depreciable Plant Assets
Cash
80,000
Accumulated Depreciation
40,000
Machinery
Gain on Sale of Machinery
To record sale of machine to Soper
90,000
30,000
6 - 17
Downstream Sale of
Depreciable Plant Assets
Income from Soper
30,000
Investment in Soper
30,000
To offset the unrealized gain
Investment in Soper
6,000
Income from Soper
6,000
To partially recognize the gain over five years
2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
6 - 18
Downstream Sale of
Depreciable Plant Assets
Machinery
80,000
Cash
80,000
To record purchase of machine from Perry
6 - 19
6 - 20
Learning Objective 3
6 - 21
6 - 22
Investment in Stan
10,000
Income from Stan
10,000
To recognize previously deferred profit
on sale to Stan
2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
6 - 23
Cash
65,000
Land
Gain
To record sale of land
50,000
15,000
6 - 24
Investment in Stan
10,000
Gain on Land
10,000
To adjust gain on land to the $25,000 gain
to the consolidated entry
2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
6 - 25
Learning Objective 4
6 - 26
70,000
$63,000 to Park
$7,000 to MI
6 - 27
$70,000
10,000
$60,000
60,000
$54,000 to Park
$6,000 to MI
6 - 28
Consolidated Example
Plank Corporation acquired a 90% interest
in Sharp Corporation at its book value of
$450,000 on January 3, 2005.
On July 1, 2005, Plank sold land
to Sharp at a gain of $5,000.
During 2007, Sharp sold the land to an
outsider at a loss to Sharp of $1,000.
2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
6 - 29
Consolidated Example
On January 2, 2006, Sharp sold equipment with a
five-year remaining life to Plank at a gain of $20,000.
Plank still had the equipment on 12/31/2007.
On January 5, 2007, Plank sold a building
to Sharp at a gain of $32,000.
The remaining useful life on this date was 8 years.
Sharp still owned the building on 12/31/2007.
2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
6 - 30
Consolidated Example
6 - 31
Consolidated Example
Investment in Sharp 12/31/2006
$520,600
Add: Income from Sharp
($80,000 90%)
72,000
Gain on land
5,000
Piecemeal recognition
of gain on equipment
3,600
Deduct: Unrealized profit on building
(28,000)
Dividends received 2007
(27,000)
Investment in Sharp 12/31/2007
$546,200
2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn
6 - 32
a Investment in Sharp
5,000
Gain on Land
5,000
To recognize previously deferred gain on land
6 - 33
6 - 34
c Gain on Buildings
32,000
Accumulated Depreciation
4,000
Buildings
32,000
Depreciation Expense
4,000
To eliminate unrealized gain on the downstream
sale of buildings
6 - 35
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6 - 40
Accumulated Depreciation
10,000
Depreciation Expense
10,000
To eliminate depreciation on the gross profit from
the sale ($50,000 5)
6 - 41
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End of Chapter 6
6 - 43