Several years ago Squid Inc. acquired an 80% interest in Icecap Corp. The book v
ID: 2472483 • Letter: S
Question
Several years ago Squid Inc. acquired an 80% interest in Icecap Corp. The book values of Icecap's asset and liability accounts at that time were considered to be equal to their fair values. Squid's acquisition value corresponded to the underlying book value of Icecap so that no allocations or goodwill resulted from the transaction. The following selected account balances are from the individual financial records of these two companies as of December 31, 2012:
Squid Inc. Icecap Inc.
Sales 896,000 504,000
COGS 406,000 276,000
Operating Exp 210,000 147,000
R/E 1/1/2014 1,036,000 252,000
Inventory 484,000 154,000
Land 250,000 100,000
Building, net 501,000 220,000
Investment Income Not Given
The following transactions have occurred between Squid and Icecap. Squid accounts for its investment in Icecap using the intial value method:
A) Icecap sells inventory to Squid at a markup equal to 25% of cost. Intra entity transfers were $130,000 in 2011 and $165,000 in 2012. Of this inventory, $39,000 of the 2011 transfers were retained and then sold by Squid in 2012, while 455,000 of the 2012 transfers were retained and then sold by Squid in 2013.
B) Squid sold a building to Icecap on January 1, 2010 for $112,000, although the book value of this asset was only $70,000 on that date. The building had a five year remaining useful life and was to depreciated using the straight line method with no salvage value.
C) Icecap sold land to Squid on January 1, 2009 for $100,000, although the book value of this asset was only $65,000 on that date. Squid employs this land in its overall operations.
Questions: 1. In good form, prepare the consolidation elimination entries needed in connection with transactions A-C at December 31, 2012. For each entry.
2. In good form, prepare a schedule showing the noncontrolling interest in the consolidated 2012 net income.
3. In good form, prepare the consolidation elimination entries needed in connection with transactions A-C at December 31, 2013. For each entry.
Explanation / Answer
Ans 1 2012 USD$
Sales a/c 165000
Cost of Good sold 165000
(Elimates transferred inventory)
Cost of Good sold a/c Dr 132000
Inventory a/c 132000
(it is booked at cost price 165000/125*100)
Retained Earnings of Squid a/c Dr 7800
Investment in Ice cap 6240
Non contolling interest 1560
( It unrealized gross profit realized 39000/125*25 and divided in ratio of 80 and 20)
Ans 3 On 31 December 2013
Retained Earnings of Squid a/c Dr 33000
Investment in Ice cap 27400
Non contolling interest 6600
( It unrealized gross profit realized 39000/125*25 and divided in ratio of 80 and 20)
The inter transfer were $165000 is 2012 but in the other line it is mentioned $455000. I have taken $165000
B) Investment in Iceland a/c Dr 16800
Accumulated Depreciation 16800
(Gain was 42000 in 2010 so for third year the bal is $16800 )
31.12 2012 and 31.12.2013 Accumulated depreciation a/c Dr 8400
Depreciation 8400
(Gain was 42000 in 2010 so for third year the bal is $8400 )
31.12.2013 Investment in iceland a/c dr 8400
To Accumulated Depreciation 8400
C) Gain On Sale Of land a/c Dr 35000
Land 35000
(eNTRY TL Being gain eliminated)
Retained earning (Icecap) a/c Dr 35000
lLand 35000
(Entry GL As long as the land remains on the books of the buyer, the unrealized gain must be eliminated at the end of each fiscal period.) i.e is 2012 and 2013
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.