Pop Company acquired 70% of Son Limited on January 1, 20X4, for $343,000. On the acquisition date,
Question:
Intercompany transactions include the downstream sale of a capital asset in 20X4, which included an unrealized profit of $30,000 to be amortized over five years. During 20X5, there was an intercompany upstream sale of land for $120,000. The original cost of the land was $95,000.
For the year ended December 31, 20X5, Pop Company had net income of $244,000 and declared dividends of $10,000. Son Limited had 20X5 net income of $85,000 and paid dividends of $10,000. All dividends have been declared and paid on December 31. Pop Company uses the cost method to account for its investment in Son Limited. Shown below are the statements of financial position for the parent company and its subsidiary on December 31, 20X5.
Required
1. Determine consolidated net income for the year ended December 31, 20X5. Show all your calculations.
2. Calculate the balances of the following accounts as they would appear in the consolidated statement of financial position on December 31, 20X5:
i. capital assets, net;
ii. non-controlling interest; and
iii. retained earnings.
3. Prepare the required December 31, 20X5, journal entry to eliminate the investment in Son Limiteds account.
Step by Step Answer:
Advanced Financial Accounting
ISBN: 978-0132928939
7th edition
Authors: Thomas H. Beechy, V. Umashanker Trivedi, Kenneth E. MacAulay