1. Power Corporation owns 75 percent of Swift Company’s stock. Swift provides he
ID: 2492592 • Letter: 1
Question
1. Power Corporation owns 75 percent of Swift Company’s stock. Swift provides health care services to its employees and those of Power. During 20X2, Power recorded $44,000 as health care expense for medical care given to its employees by Swift. Swift’s costs incurred in providing the services to Power were $34,000.(Leave no cells blank, enter "0" wherever required.)
By what amount will consolidated net income change when the intercompany services are eliminated in preparing Power’s consolidated statements for 20X2?
What would be the impact of eliminating the intercompany services on consolidated net income if Power owned 100 percent of Swift’s stock rather than 75 percent?
If in its consolidated income statement for 20X2 Power had reported total health care costs of $78,000, what was the cost to Swift of providing health care services to its own employees?
2.
Bowen Corporation owns 70 percent of Roan Corporation’s voting common stock. On March 12, 20X2, Roan sold land it had purchased for $140,000 to Bowen for $185,000. Bowen plans to build a new warehouse on the property in 20X3
Prepare the worksheet consolidation entries to remove the effects of the intercompany sale of land in preparing the consolidated financial statements at December 31, 20X2 and 20X3. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
Prepare the worksheet consolidation entries needed at December 31, 20X3 and 20X4, if Bowen had initially purchased the land for $150,000 and sold it to Roan on March 12, 20X2, for $180,000. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
1. Power Corporation owns 75 percent of Swift Company’s stock. Swift provides health care services to its employees and those of Power. During 20X2, Power recorded $44,000 as health care expense for medical care given to its employees by Swift. Swift’s costs incurred in providing the services to Power were $34,000.(Leave no cells blank, enter "0" wherever required.)
Explanation / Answer
1a) Amount of profit booked by swift on services provided = 10000 ( 44000 - 34000)
Share of Power in profits of swift = 75 %
Amount to be eliminated on account of intercompany services = Profit x 75 %
= 10000 x 75 % = 7500
Now 7500 will be deducted from income of Swift leading to fall in income of swift by 7500
and also there will be reduction in cost of power by 7500 leading to rise in profits of power by 7500
So practically there will be no change in consolidated income as decrease in profit is off set by increase in profit
1b) same as above
In this case full profit of 10000 is reversed but there will be no change in consolidated net income
1 c) Amount stated in consolidated income statement = 78000
Amount recorded by Power in its books = 44000
Amount carried to consolidated income statement after adjusting intercompany services
= 44000 - 7500 , = 36500
Amount recorded by Swift will be = Total amount - amount iincurred by Power
= 78000 - 36500
= 41500
It has been assumed that consolidated statement represents adjusted value
As per other assumption that intercompany services have not been adjusted then amount recorded by swift will be
= 78000 - 44000
= 34000
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