Baywatch Industries has owned 80 percent of Tubberware Corporation for many year

Question

Baywatch Industries has owned 80 percent of Tubberware Corporation for many years. On January 1, 20X6, Baywatch paid Tubberware $213,000 to acquire equipment that Tubberware had purchased on January 1, 20X3, for $234,000. The equipment is expected to have no scrap value and is depreciated over a 15-year useful life.

      Baywatch reported operating earnings of $110,000 for 20X8 and paid dividends of $45,000. Tubberware reported net income of $44,000 and paid dividends of $23,000 in 20X8. (Leave no cell blank, enter "0" wherever required.)

a. Compute the amount reported as consolidated net income for 20X8.

Consolidated net income_____ (I got 156,917 but it was wrong)

Explanation / Answer

depreciation expense: purchaser = ($213,000 / 12) = $17750 consolidated = ($234,000 / 15) = $15600

gain realized each year = differential depreciation = $15600-$17750=$2150 credit (gain realized)

Also note: there is no purchase differential to write-off or amortize since purchase price = book value

(a)

Baywatch’s separate operating income

$ 110,000

Baywatch’s share of Tubberware’s realized income:

     [($44,000 + $2150) x 80%]

     36920

Consolidated net income

$ 146920

(a)

Baywatch’s separate operating income

$ 110,000

Baywatch’s share of Tubberware’s realized income:

     [($44,000 + $2150) x 80%]

     36920

Consolidated net income

$ 146920

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