1)In January 2013, S Company, an 80% owned subsidiary of P Company, sold equipme
ID: 2458824 • Letter: 1
Question
1)In January 2013, S Company, an 80% owned subsidiary of P Company, sold equipment to P Company for $1,980,000. S Company’s original cost for this equipment was $2,000,000 and had accumulated depreciation of $200,000. P Company continued to depreciate the equipment over its 9 year remaining life using the straight-line method. This equipment was sold to a third party on January 1, 2017 for $1,440,000. What amount of gain should P Company record on its books in 2017?a) $60,000. b) $120,000. c) $240,000. d) $360,000. 2)On January 1, 2016 S Corporation sold equipment that cost $120,000 and had a book value of $48,000 to P Corporation for $60,000. P Corporation owns 100% of S Corporation and the equipment has a 4-year remaining life. What is the effect of the sale on P Corporation’s Equity from Subsidiary Income account for 2017?
a) no effect b) increase of $12,000. c) decrease of $12,000. d) increase of $3,000. 3) P Corporation acquired an 80% interest in S Corporation two years ago at an implied value equal to the book value of S. On January 2, 2017, S sold equipment with a five-year remaining life to P for a gain of $120,000. S reports net income of $600,000 for 2017 and pays dividends of $200,000. P’s Equity from Subsidiary Income for 2017 is:
a) $480,000. b) $384,000. c) $403,200. d) $576,000 Please show me all the work....so I can learn from instead of just posting answers...thanks
1)In January 2013, S Company, an 80% owned subsidiary of P Company, sold equipment to P Company for $1,980,000. S Company’s original cost for this equipment was $2,000,000 and had accumulated depreciation of $200,000. P Company continued to depreciate the equipment over its 9 year remaining life using the straight-line method. This equipment was sold to a third party on January 1, 2017 for $1,440,000. What amount of gain should P Company record on its books in 2017?
a) $60,000. b) $120,000. c) $240,000. d) $360,000. 2)On January 1, 2016 S Corporation sold equipment that cost $120,000 and had a book value of $48,000 to P Corporation for $60,000. P Corporation owns 100% of S Corporation and the equipment has a 4-year remaining life. What is the effect of the sale on P Corporation’s Equity from Subsidiary Income account for 2017?
a) no effect b) increase of $12,000. c) decrease of $12,000. d) increase of $3,000. 3) P Corporation acquired an 80% interest in S Corporation two years ago at an implied value equal to the book value of S. On January 2, 2017, S sold equipment with a five-year remaining life to P for a gain of $120,000. S reports net income of $600,000 for 2017 and pays dividends of $200,000. P’s Equity from Subsidiary Income for 2017 is:
a) $480,000. b) $384,000. c) $403,200. d) $576,000 Please show me all the work....so I can learn from instead of just posting answers...thanks
a) $60,000. b) $120,000. c) $240,000. d) $360,000. 2)On January 1, 2016 S Corporation sold equipment that cost $120,000 and had a book value of $48,000 to P Corporation for $60,000. P Corporation owns 100% of S Corporation and the equipment has a 4-year remaining life. What is the effect of the sale on P Corporation’s Equity from Subsidiary Income account for 2017?
a) no effect b) increase of $12,000. c) decrease of $12,000. d) increase of $3,000. 3) P Corporation acquired an 80% interest in S Corporation two years ago at an implied value equal to the book value of S. On January 2, 2017, S sold equipment with a five-year remaining life to P for a gain of $120,000. S reports net income of $600,000 for 2017 and pays dividends of $200,000. P’s Equity from Subsidiary Income for 2017 is:
a) $480,000. b) $384,000. c) $403,200. d) $576,000 3) P Corporation acquired an 80% interest in S Corporation two years ago at an implied value equal to the book value of S. On January 2, 2017, S sold equipment with a five-year remaining life to P for a gain of $120,000. S reports net income of $600,000 for 2017 and pays dividends of $200,000. P’s Equity from Subsidiary Income for 2017 is:
a) $480,000. b) $384,000. c) $403,200. d) $576,000 Please show me all the work....so I can learn from instead of just posting answers...thanks
Explanation / Answer
a) Unrealized Gain in S at time of sale= $1980000-(2000000-200000)=$180000
Year after intercompany sale=
Depreciation will be on cost remaining for 9 years= $1800000/9= $200000 per year
Beginning retained earnings - P 144000
Beginning retained earnings - S 36000
Equipment 20000
Accumulated depreciation 200000
Sale after 4 years on Jan,1 2017 so value of equipment= $1800000(historical cost at time of intercompany transaction)- $800000($200000*4 depreciation)= $1000000
sale value= $1440000
So Gain= $440000 and we have to subtract unrealized gain which was recorded first ($180000/9*4 years)
= $440000-$80000= $360000 Answer
2) Book value=$48000
Unrealized Gain= $12000 of S which is divided into 4 years useful life in P a/c i.e $3000 per year. Ans. Increase of $3000
Investment in S $3000
Equity in subsidiary income $3000
3) Dividend= $200000*.8= $160000
Net Income = $400000*.8=$320000
Ans- $480000
Income from S (600000*.8) $480,000
^Dividend $160000
Investment in S $320000
Unrealized Gain divided in 5 years but this will start from next year after Inter Company sale i.e after 2017= $120000/5= $24000
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