On January 1, 2013, Musial Corp. sold equipment to Matin Inc. (a wholly-owned su

Question

On January 1, 2013, Musial Corp. sold equipment to Matin Inc. (a wholly-owned subsidiary) for $168,000 in cash. The equipment originally cost $140,000 but had a book value of only $98,000 when transferred. On that date, the equipment had a five-year remaining life. Depreciation expense was calculated using the straight-line method.

Musial earned $308,000 in net income in 2013 (not including any investment income) while Matin reported $126,000. Assume there is no amortization related to the original investment.

A. What is consolidated net income for 2013?

B. Assuming that Musial owned only 90% of Martin, what is consolidated net income for 2013?

C. Prepare a schedule of consolidated net income and the share to controlling and non-controlling interests for 2013, assuming that Musial owned only 90% of Matin and the equipment transfer had been upstream

Explanation / Answer

A) Consolidated net Income for 2013:

                                                                   Musial             Martin        Consolidated

Net Income before consolidation                308,000    126,000

Add: Excess depreciation claimed by                                                             

Martin on the equipment sold by Musial                               14,000______________

Net Income after consolidation                                 308,000         140,000             448,000

Answer: Consolidated Net Income for 2013 = $ 448,000.

As Martin is a wholly owned subsidiary, ther is no minority interest.

B) Where Musial owned 90% of Martin:

     Consolidated Net Income = 308,000 + 0.9*140000 = $ 434,000

    Minority Interest                                                  = $   14,000

C) If the equipment sale had been upstream:

                                                             Musial             Martin        Consolidated

Net Income before consolidation                308,000    126,000

Add: Excess depreciation claimed by                                                             

        Musial on the equipment sold by Martin      14,000                                             ________

Net Income after consolidation                           322,000         126,000             448,000

As Musial owns only 90% of Martin, the Net Income of Martin is to be apportioned to controlling and non-controlling interest in the ratio of 90:10, which is equal to $ 113,400 to Controlling interest and $12,600.

The consolidated Net Income = 322,000 + .9*126,000 = $ 435,400

Minority Interest                                                       = $ 12,600

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