Question

Brown Corporation holds 70 percent of Transom Company's voting common stock. On January 1, 20X2, Transom paid $300,000 to acquire a building with a 15-year expected economic life. Transom uses straight-line depreciation for all depreciable assets. On December 31, 20X7, Brown purchased the building from Transom for $144,000. Brown reported income, excluding investment income from Transom, of $125,000 and $150,000 for 20X7 and 20X8, respectively. Transom reported net income of $15,000 and $40,000 for 20X7 and 20X8, respectively.

Required
a. Give the appropriate elimination entry or entries needed to eliminate the effects of the intercompany sale of the building in preparing consolidated financial statements for 20X7.
b. Compute the amount to be reported as consolidated net income for 20X7 and the income to be allocated to the controlling interest.
c. Give the appropriate elimination entry or entries needed to eliminate the effects of the intercompany sale of the building in preparing consolidated financial statements for 20X8.
d. Compute consolidated net income and the amount of income assigned to the controlling shareholders in the consolidated income statement for 20X8.



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  • CreatedMay 23, 2014
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