On January 1, 2016, Tilson Corporation sold a tract of land to its 100% owned su
ID: 2539219 • Letter: O
Question
On January 1, 2016, Tilson Corporation sold a tract of land to its 100% owned subsidiary, Abreau, Inc., for $360,000. The land originally cost Tilson $314,000. Abreau reported net income of $540,000 and $611,000 for 2016 and 2017, respectively. Tilson received dividends from Abreau of $65,000 and $72,000 for 2016 and 2017, respectively.
Assume that Tilson uses the equity method to account for its investment in Abreau. What is the balance in the pre-consolidation Income (loss) from Subsidiary account for 2017?
Select one:
A. 540,000
B. 657,000
C. 971,000
D. 611,000
Explanation / Answer
Answer:
B. Pre-consolidation Income (loss) from subsidiary account = $657,000
Working:
1.
Net Income from Abreau during the year 2017
$611,000
Add: Prior year profit on sale of land (360,000- 314,000)
$46,000
Net Income(loss) from subsidiary
$657,000
2.) In equity method dividend income will increase the value of Equity investment account instead of net income from subsidiay under equity method. So dividend will not be considered for calculating pre-consolidation income(loss) from subsidiary account.
Net Income from Abreau during the year 2017
$611,000
Add: Prior year profit on sale of land (360,000- 314,000)
$46,000
Net Income(loss) from subsidiary
$657,000
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