Can anyone answer part B? Thanks, Consolidation subsequent to date of acquisitio

Question

Can anyone answer part B?

Thanks,

Consolidation subsequent to date of acquisition- Equity method with noncontrolling interest, AAP, and gain on upstream intercompany equipment sale A parent company acquired its 75% interest in its subsidiary on January 1, 2008. on the acquisition date, the total fair value of the controlling interest and the noncontrolling interest was $420,000 in excess of the book value of the subsidiary's Stockholders' Equity. All of that excess was allocated to a Royalty Agreement, which had a zero book value in the subsidiary's financial statements (i.e., there is no Goodwill). The Royalty Agreement has a 7 year estimated remaining economic life on the acquisition date. Both companies use straight line depreciation and amortization, with no salvage value In January 2011, the subsidiary sold Equipment to the parent for a cash price of $255,000. The subsidiary acquired the equipment at a cost of $480000 and depreciated the equipment over its 10- year useful life using the straight-line method (no salvage value). The subsidiary had depreciated the equipment for 6 years at the time of sale. The parent retained the depreciation policy of the subsidiary and depreciated the equipment over its remaining 4 year useful life Following are financial statements of the parent and its subsidiary for the year ended December 31, 2013. The parent uses the equity method to account for its Equity Investment.

Explanation / Answer

Net Intercompany Profit Deferred at 1/1/13

($ 96000 Profit Earned in Year 2011 / 4Years ) * 2

Parent Company Purchase the PPE from Sunsidary for $ 288,000 which book value was $ 192000 as on the sale date therefor there is profit of $ 96000 should be deffer for 4 years which comes $ 24,000 each year. 2011 and 2012 year deffered income is provide so as on 01/01/13 the opening value is $ 48,000 and current year inomc e is $ 24,000 and Balance carry forward is $ 24000 for year 2014.

Downstream Upstream

Net Intercompany Profit Deferred at 1/1/13

($ 96000 Profit Earned in Year 2011 / 4Years ) * 2

0 $ 48000 Less: Current Year Profit 0 ($ 24,000) Net Intercompany profit deferred at 12/31/13 0 $ 24,000

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