Question

The consolidated statement of comprehensive income of Top Corporation (TOP) and its subsidiary Bottom Company (BTM) was prepared incorrectly by an inexperienced accounting clerk. You have now been hired by TOP and you are asked to prepare a corrected consolidated SCI for an upcoming meeting. TOP owns 80% of the outstanding shares of BTM, and BTM declared and paid a dividend of $ 25,000 on December 15, 20X6. The following is the preliminary consolidated SCI of TOP, as prepared by the accounting clerk, for the year ended December 31, 20X6.
Statements of Comprehensive Income
Year Ended December 31, 20X6


Additional Information
Your discussions with other management personnel provided you with the following additional information:
1. The gain on sale of capital assets resulted from BTM selling equipment to TOP on January 1, 20X6. At the time of the sale, the equipment was recorded on BTM’s books with a cost of $ 120,000 and net carrying value of $ 60,000. The equipment was purchased on January 1, 20X0, and has been amortized on a straight-line basis over its estimated useful life of 12 years. There was no change in the estimated useful life of the equipment upon acquisition by TOP. Amortization in the year of acquisition/ sale is based on the number of months owned, for both companies.
2. TOP and BTM had never had any intercompany sales prior to January 1, 20X6. However, on October 31, 20X6, TOP sold BTM inventory for $ 60,000, which originally cost TOP $ 40,000. By December 31, 20X6, 50% of this inventory was resold by BTM to its retail customers.
3. TOP and BTM both pay income taxes at a rate of 40%, including taxes for gains on sales of capital assets.
4. TOP uses the cost method of accounting to record its investment in BTM.
5. At the date of acquisition of the common shares of BTM there was no fair- value increment.

Required
Prepare a corrected consolidated SCI for the year ended December 31, 20X5, under the entitymethod.


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  • CreatedMarch 13, 2015
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