Brown Corporation holds 70 percent of Transom Company’s voting common stock. On

Question

Brown Corporation holds 70 percent of Transom Company’s voting common stock. On January 1, 20X2, Transom paid $360,000 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 $180,000. Brown reported income, excluding investment income from Transom, of $135,000 and $150,000 for 20X7 and 20X8, respectively. Transom reported net income of $12,000 and $48,000 for 20X7 and 20X8, respectively.

Prepare the appropriate Consolidation entry or entries needed to eliminate the effects of the intercompany sale of the building in preparing consolidated financial statements for 20X7. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Compute the amount to be reported as consolidated net income for 20X7 and the income to be allocated to the controlling interest.

Prepare the appropriate Consolidation entry or entries needed to eliminate the effects of the intercompany sale of the building in preparing consolidated financial statements for 20X8. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round your answer to whole dollar.)

Compute consolidated net income and the amount of income assigned to the controlling shareholders in the consolidated income statement for 20X8. (Round your answer to whole dollar.)

Brown Corporation holds 70 percent of Transom Company’s voting common stock. On January 1, 20X2, Transom paid $360,000 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 $180,000. Brown reported income, excluding investment income from Transom, of $135,000 and $150,000 for 20X7 and 20X8, respectively. Transom reported net income of $12,000 and $48,000 for 20X7 and 20X8, respectively.

Explanation / Answer

Books of Brown Corpn. Books of Transom Co. Jan 20X2 Buildings 360000 Cash 360000 Dec 31, 20X7 Carrying value 360000-(360000/15*6)= 216000 Journal entry for Purchase on Dec 31, 20X7 Journal entry for sale on Dec 31, 20X7 Buildings 180000 Cash 180000 Cash 180000 Acc.depn. Bldgs 144000 Loss on sale 36000 Buildings 360000 Above entry on consolidation Buildings 180000 Acc.depn. Bldgs 144000 Loss on sale 36000 Buildings 360000 So, Net entry will be Acc.depn. Bldgs 144000 Loss on sale 36000 Buildings 180000 a. Elimination entry on consolidation will be Buildings 180000 Acc.depn. Bldgs 144000 Loss on sale 36000 (to reverse the net entry & eliminate unrealised loss ) b.. Amount to be reported as consolidated net income for 20X7 135000+(12000+36000))= 183000 Less:Income allocated to Non-controlling interest in 20X7 (30%*(12000+36000)) 14400 So,Income allocated to Controlling interest in 20X7 183000-14400= 168600 c.. Elimination entry in 20X8 Buildings(360000-180000) 180000 Depreciation expense((360000/15 yrs.)-(180000/9 rem.yrs.)) 4000 Acc.depn. Bldgs(144000+4000) 148000 Retained Earnings (Unrealised Loss 36000*70%) 25200 Non-Controlling interest(36000*30%) 10800 d. Amount to be reported as consolidated net income for 20X7 150000+(48000- Depn. 4000))= 194000 Less:Income allocated to Non-controlling interest in 20X7 (30%*(48000-4000)) 13200 So,Income allocated to Controlling interest in 20X7 194000-13200= 180800

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