Problem

1. Son Corporation is an 80 percent-owned subsidiary of Pin Corporation. In 2011, Son sold...

1. Son Corporation is an 80 percent-owned subsidiary of Pin Corporation. In 2011, Son sold land that cost $15,000 to Pin for $25,000. Pin held the land for eight years before reselling it in 2019 to Roy Company, an unrelated entity, for $55,000. The 2019 consolidated income statement for Pin and its subsidiary, Son, will show a gain on the sale of land of:

a $40,000

b $32,000

c $30,000

d $24,000


2. On January 3, 2011, Pal Corporation sells equipment with a book value of $90,000 to its 100 percent-owned subsidiary, Sat Corporation, for $120,000. The equipment has a remaining useful life of three years with no salvage at the time of transfer. Sat uses the straight-line method of depreciation. As a result of this intercompany transaction, Pal’s Investment in Sat account balance at December 31, 2011, will be:

a $20,000 greater than its underlying equity interest

b $20,000 less than its underlying equity interest

c $30,000 less than its underlying equity interest

d $10,000 greater than its underlying equity interest


3. Pen Corporation sells equipment with a book value of $80,000 to Sir Company, its 75 percent-owned subsidiary, for $100,000 on January 1, 2011. Sir determines that the remaining useful life of the equipment is four years and that straight-line depreciation is appropriate. The December 31, 2011, separate financial statements of Pen and Sir show equipment—net of $500,000 and $300,000, respectively. Consolidated equipment—net will be:

a $800,000

b $785,000

c $780,000

d $650,000


4. Par Corporation sold equipment with a remaining three-year useful life and a book value of $14,500 to its 80 percent-owned subsidiary, Sad Corporation, for $16,000 on January 2, 2011. A consolidated workpaper entry on December 31, 2011, to eliminate the unrealized profits from the intercompany sale of equipment will include:

a A debit to gain on sale of equipment for $1,000

b A debit to gain on sale of equipment for $1,500

c A credit to depreciation expense for $1,500

d A debit to machinery for $1,500


5. A subsidiary sells equipment with a four-year remaining useful life to its parent at a $12,000 gain on January 1, 2011. The effect of this intercompany transaction on the parent’s investment income from its subsidiary for 2011 will be:

a An increase of $12,000 if the subsidiary is 100% owned

b An increase of $9,000 if the subsidiary is 100% owned

c A decrease of $9,000 if the subsidiary is 100% owned

d A decrease of $3,600 if the subsidiary is 60% owned


6. On January 1, 2011, Sin Corporation, a 60 percent-owned subsidiary of Pot Company, sells a building with a book value of $300,000 to its parent for $350,000. At the time of sale, the building has an estimated remaining life of 10 years with no salvage value. Pot uses straight-line depreciation. If Sin reports net income of $1,000,000 for 2011, noncontrolling interest share will be:

a $450,000

b $400,000

c $382,000

d $355,000

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Solutions For Problems in Chapter 6