Question

On January 1, 2018, Ackerman sold equipment to Brannigan (a wholly owned subsidiary) for $190,000 in cash. The equipment had originally cost $171,000 but had a book value of only $104,500 when transferred. On that date, the equipment had a five-year remaining life. Depreciation expense is computed using the straight-line method. Ackerman reported $470,000 in net income in 2018 (not including any investment income) while Brannigan reported $154,100. Ackerman attributed any excess acquisition-date fair value to Brannigan's unpatented technology, which was amortized at a rate of $5,700 per year. a. What is consolidated net income for 2018? b. What is the parent's share of consolidated net income for 2018 if Ackerman owns only 90 percent of Brannigan? c. What is the parent's share of consolidated net income for 2018 if Ackerman owns only 90 percent of Brannigan and the equipment transfer was upstream? d. What is the consolidated net income for 2019 if Ackerman reports $490,000 (does not include investment income) and Brannigan $165,800 in income? Assume that Brannigan is a wholly owned subsidiary and the equipment transfer was downstream. Amounts a. Consolidated net income b. Consolidated net income to parent company C. Consolidated net income to parent company d. Consolidated net income

Answer 1

a.

	Amount ($)
Net income – Ackerman	470,000
Net income – Brannigan	154,100
Excess amortization for unpatented technology	(5,700)
Unrealized gain on equipment removed (190,000-104500)	(85,500)
Excess depreciation created by inflated transfer price (85,500/5)	17,100
Consolidated net income	550,000

b.

	Amount ($)
Consolidated net income from above	550,000
Net income towards noncontrolling interest
Net income- Brannigan             154,100
Excess amortization                   (5,700)
Adjusted net income                  148,400
NI attributatble to noncontrolling interest        10%	(14,840)
Consolidated net income to parent company	535,160

c.

	Amount ($)
Consolidated net income from (a)	550,000
Net income towards noncontrolling interest (working note below)	8,000
Consolidated net income to parent company	542,000

Working note :

	Amount ($)
Reported subsidiary net income	154,100
Excess amortization	(5,700)
Defer intra-entity gain on equipment transfer	(85,500)
Remove excess depreciation	17,100
Brannigan’s adjusted net income	80,000
Outside ownership	10%
Net income towards noncontrolling interest	8,000

d.

	Amount ($)
Net income of Ackerman	490,000
Net income of Brannigan	165,800
Excess amortization	(5,700)
Excess depreciation removed	17,100
Consolidated net income	667,200

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