Asked by Simply Eleni on Jun 07, 2024
Verified
Farm owns 70% of the common shares of XL and accounts for its investment using the cost method. In 20X6, Farm purchased equipment from XL for $300,000. The equipment had been purchased by XL for $420,000 in 20X2, had accumulated depreciation of $168,000 and a six-year remaining life at December 31, 20X5. Both companies record a full year of depreciation expense in the year of the purchase and no depreciation in the year of a sale.
Required:
Indicate the consolidation adjustments to the following accounts for the years ended 20X6, 20X8, and 20X11:
• Depreciation expense
• Net book value of equipment
• Non-controlling interest on statement of comprehensive income
• Non-controlling interest on statement of financial position
• Retained earnings, end of year
Non-controlling Interest
A financial interest in a subsidiary that is not enough to exert control over its policies, usually shown as a separate element of equity in the consolidated financial statements.
Accumulated Depreciation
The total amount of a tangible asset's cost that has been allocated as depreciation expense since the asset was put into use.
Common Shares
A type of equity security representing ownership in a corporation, entitling holders to dividends and voting rights, among other rights.
- Comprehend the process and implications of intercompany transactions on consolidation adjustments for depreciation expense, net book value of equipment, and non-controlling interests.
Verified Answer
MY
Melanie YakelJun 07, 2024
Final Answer :
Proceeds on upstrearn sale $300,000 Net book value of equipment 252,000 Gain on sale $$B,000 Excess depreciation per year $B,000\begin{array} { l l } \text { Proceeds on upstrearn sale } & \$ 300,000 \\\text { Net book value of equipment } & 252,000 \\\text { Gain on sale } & \$ \$ B , 000 \\\text { Excess depreciation per year } & \$ B , 000\end{array} Proceeds on upstrearn sale Net book value of equipment Gain on sale Excess depreciation per year $300,000252,000$$B,000$B,000 The consolidated adjustments (in 000s)would be as follows:
20X620X820X11$$$ Total gain on sale at time of sale (48,000)(48,000)(48,000)8,00024,00048,000 Realized to date through depreciation (1 year )(3 years ) (6 years) Unrealized gain to date (40,000)(24,000)0 NCI’s portion of unrealized gain to date (30%)(12,000)(7,200)0 Retained earnings impact (70%)(28,000)(16,800)0 Net impact on net income (40,000)$8,000$8,000 NCI’s portion of net income impact 30%(12,000)$2,400$2,400\begin{array}{|l|r|r|r|}\hline &20X6 & 20X8 & 20X11 \\&\$ & \$ & \$ \\\hline \text { Total gain on sale at time of sale } & (48,000) & (48,000) & (48,000) \\\hline & 8,000 & 24,000 & 48,000 \\ \text { Realized to date through depreciation }&(1 \text { year }) & (3 \text { years })& \text { (6 years) }\\\hline \text { Unrealized gain to date } & (40,000) & (24,000) &0 \\\hline \text { NCI's portion of unrealized gain to date } & & & \\(30 \%) & (12,000) & (7,200) &0 \\\hline \text { Retained earnings impact }(70 \%) & (28,000) & (16,800) & 0 \\\hline \text { Net impact on net income } & (40,000) & \$ 8,000 & \$ 8,000 \\\hline \text { NCI's portion of net income impact } 30 \% & (12,000) & \$ 2,400 & \$ 2,400 \\\hline\end{array} Total gain on sale at time of sale Realized to date through depreciation Unrealized gain to date NCI’s portion of unrealized gain to date (30%) Retained earnings impact (70%) Net impact on net income NCI’s portion of net income impact 30%20X6$(48,000)8,000(1 year )(40,000)(12,000)(28,000)(40,000)(12,000)20X8$(48,000)24,000(3 years )(24,000)(7,200)(16,800)$8,000$2,40020X11$(48,000)48,000 (6 years) 000$8,000$2,400
20X620X820X11$$$ Total gain on sale at time of sale (48,000)(48,000)(48,000)8,00024,00048,000 Realized to date through depreciation (1 year )(3 years ) (6 years) Unrealized gain to date (40,000)(24,000)0 NCI’s portion of unrealized gain to date (30%)(12,000)(7,200)0 Retained earnings impact (70%)(28,000)(16,800)0 Net impact on net income (40,000)$8,000$8,000 NCI’s portion of net income impact 30%(12,000)$2,400$2,400\begin{array}{|l|r|r|r|}\hline &20X6 & 20X8 & 20X11 \\&\$ & \$ & \$ \\\hline \text { Total gain on sale at time of sale } & (48,000) & (48,000) & (48,000) \\\hline & 8,000 & 24,000 & 48,000 \\ \text { Realized to date through depreciation }&(1 \text { year }) & (3 \text { years })& \text { (6 years) }\\\hline \text { Unrealized gain to date } & (40,000) & (24,000) &0 \\\hline \text { NCI's portion of unrealized gain to date } & & & \\(30 \%) & (12,000) & (7,200) &0 \\\hline \text { Retained earnings impact }(70 \%) & (28,000) & (16,800) & 0 \\\hline \text { Net impact on net income } & (40,000) & \$ 8,000 & \$ 8,000 \\\hline \text { NCI's portion of net income impact } 30 \% & (12,000) & \$ 2,400 & \$ 2,400 \\\hline\end{array} Total gain on sale at time of sale Realized to date through depreciation Unrealized gain to date NCI’s portion of unrealized gain to date (30%) Retained earnings impact (70%) Net impact on net income NCI’s portion of net income impact 30%20X6$(48,000)8,000(1 year )(40,000)(12,000)(28,000)(40,000)(12,000)20X8$(48,000)24,000(3 years )(24,000)(7,200)(16,800)$8,000$2,40020X11$(48,000)48,000 (6 years) 000$8,000$2,400
Learning Objectives
- Comprehend the process and implications of intercompany transactions on consolidation adjustments for depreciation expense, net book value of equipment, and non-controlling interests.