30. Intercompany transactions Assume that on January 1,2016, Sub has a patent on

Question

30. Intercompany transactions Assume that on January 1,2016, Sub has a patent on its books, with a remaining 10 year life, for $2 million. The sub sells that patent to the parent on Jan. 1, 2016, for $10 million in cash. The parent keeps the patent until it expires in 2026. Explain what adjustments will need to be made in consolidation with regard to this transaction -GIVE NUMBERS and accounts (You may give journal entries, or you may instead explain what needs to be increased or decreased using sentences) a. What, if anything, needs to be adjusted in 2016 (3 points) iM b. What, if anything, needs to be adjusted in 2020? (4 points) What, if anything, needs to be adjusted in 2030? (3 points) c.

Explanation / Answer

As per policy, only one question is allowed to answer, so answering 30 :

30)

a. Adjustment required in 2016 are : 1. Gain of $8m by the Sub on selling the patent to the parent. 2. Depreciation of the Patent at the higher value.

b. Adjustment required in 2020 are : 1. Depreciation/Amortisation of the Patent at the higher value.

c. Adjustment required in 2030 are ; No adjustment of the patent transaction done in 2016 is required, as the patent got fully amortised in 2026.

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