1)P Corporation acquired an 80% interest in S Corporation two years ago at an im

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1)P Corporation acquired an 80% interest in S Corporation two years ago at an implied value equal to the book value of S. On January 2, 2017, S sold equipment with a five-year remaining life to P for a gain of $180,000. S reports net income of $900,000 for 2017 and pays dividends of $300,000. P’s Equity from Subsidiary Income for 2017 is:
a) $720,000. b) $576,000. c) $604,800. d) $864,000 2)P Company purchased land from its 80% owned subsidiary at a cost of $30,000 greater than it subsidiary’s book value. Two years later P sold the land to an outside entity for $15,000 more than P’s cost. In its current year consolidated income statement P and its subsidiary should report a gain on the sale of land of:
a) $15,000. b) $36,000. c) $39,000. d) $45,000. 3)On January 1, 2016, P Corporation sold equipment with a 3-year remaining life and a book value of $100,000 to its 70% owned subsidiary for a price of $115,000. In the consolidated workpapers for the year ended December 31, 2017, an elimination entry for this transaction will include a:
a) debit to Equipment for $15,000. b) debit to Gain on Sale of Equipment for $15,000. c) credit to Depreciation Expense for $15,000. d) debit to Accumulated Depreciation for $10,000.
Please show me step by step so I can learn from this thank you.. 1)P Corporation acquired an 80% interest in S Corporation two years ago at an implied value equal to the book value of S. On January 2, 2017, S sold equipment with a five-year remaining life to P for a gain of $180,000. S reports net income of $900,000 for 2017 and pays dividends of $300,000. P’s Equity from Subsidiary Income for 2017 is:
a) $720,000. b) $576,000. c) $604,800. d) $864,000 2)P Company purchased land from its 80% owned subsidiary at a cost of $30,000 greater than it subsidiary’s book value. Two years later P sold the land to an outside entity for $15,000 more than P’s cost. In its current year consolidated income statement P and its subsidiary should report a gain on the sale of land of:
a) $15,000. b) $36,000. c) $39,000. d) $45,000. 3)On January 1, 2016, P Corporation sold equipment with a 3-year remaining life and a book value of $100,000 to its 70% owned subsidiary for a price of $115,000. In the consolidated workpapers for the year ended December 31, 2017, an elimination entry for this transaction will include a:
a) debit to Equipment for $15,000. b) debit to Gain on Sale of Equipment for $15,000. c) credit to Depreciation Expense for $15,000. d) debit to Accumulated Depreciation for $10,000.
Please show me step by step so I can learn from this thank you..
a) $720,000. b) $576,000. c) $604,800. d) $864,000 2)P Company purchased land from its 80% owned subsidiary at a cost of $30,000 greater than it subsidiary’s book value. Two years later P sold the land to an outside entity for $15,000 more than P’s cost. In its current year consolidated income statement P and its subsidiary should report a gain on the sale of land of:
a) $15,000. b) $36,000. c) $39,000. d) $45,000. 3)On January 1, 2016, P Corporation sold equipment with a 3-year remaining life and a book value of $100,000 to its 70% owned subsidiary for a price of $115,000. In the consolidated workpapers for the year ended December 31, 2017, an elimination entry for this transaction will include a:
a) debit to Equipment for $15,000. b) debit to Gain on Sale of Equipment for $15,000. c) credit to Depreciation Expense for $15,000. d) debit to Accumulated Depreciation for $10,000.
Please show me step by step so I can learn from this thank you..

Explanation / Answer

1) Net Income of S corporation for 2017 = $900000

Share of p in the net income = 0.8*900000 =$720000

Less: share of p in the gain on sale of equipment = 0.8*180000 = ($144000)

P’s Equity from Subsidiary Income for 2017 = $576000

P's equity = 0.8*720000

= $576000

2) Gain on sale of land to holding company by subsidiary company of $30000 should be eliminated while preparing consolidated income statements as it is intercompany sale of land

so therefore $15000 should be reported as a gain on the sale of land in the consolidated income statement

3) Elimination entry for this include a debit to Gain on Sale of Equipment for $15,000 in consolidated workpapers as this is inter company sale

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