Maffin Corp. owns 75% of Grey Inc. Both companies are in the mining industry. During 2011, Maffin Corp. purchased a building from Grey Inc. for $1,000. The building's carrying amount in Grey Inc.'s financial statements is $700. Maffin's contributed surplus account contains a credit balance of $200 from previous related party transactions. Grey's contributed surplus account is nil. There is no available independent evidence of the value of the building as it is a unique building in a remote part of the country. Maffin subsequently sold the building, during 2012, to an unrelated party for $1,100. Both Maffin and Grey follow ASPE.
Instructions
Using the related-party decision tree in Illustration 23-5, answer the following.
(a) How would both Maffin and Grey record the purchase and sale of the building during 2011?
(b) Record the subsequent sale of the building by Maffin during 2011.
(c) Assume that Maffin purchased the building from Grey for $500. How would your answer to part (a) change?
(d) Assume that the transaction is in the normal course of operations for both Maffin and Grey and that it has commercial substance. How would your answers to parts (a) and (b) change?
(e) Calculate the total impact on income of the purchase and sale of the building for 2011 and 2012 for the consolidated reporting unit of the two companies. What can you conclude from your calculation?