Genesis Herrera August 7, 2017

ACC 342

HW CH6

EXERCISE 7-1: Controlling Interest in Income

On January 1, 2014, Sherwood Company, an 80% owned subsidiary of Paradise Company, sold to
Paradise Company equipment with a book value of $600,000 for $840,000. The equipment had an
estimated remaining useful life of eight years on the date of the intercompany sale.
Paradise Company reported net income from its independent operations of $550,000, and

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Sherwood Company reported net income of $300,000 in the years of 2014 and 2015.

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Required:

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Calculate the controlling interest in combined net income for the years ended December 31, 2014, and

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December 31, 2015.

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Controlling interest in combined net income for the year ended December 31,2014:
Gain to S from the sale of equipment = (840,000-600,000)
= 240,000
Depreciation charged on gain per year = (Gain/ Useful life)
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= (240,000/8)
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=30,000
vi y re

i = net incomep +80% of (net incomes - Gain + Depreciation)

=550,000 + 0.8 x (300,000 – 240,000 +30,000)
=662,000
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Controlling interest in combined net income for the year ended December 31,2015:
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i = net incomep +80% of (net incomes + Depreciation)

=550,000 + 0.8 x (300,000 +30,000)
=814,000
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sh

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 EXERCISE 7-2: Controlling Interest in Income

On January 1, 2014, Polar Company, which owns an 80% interest in Superior Company, sold Superior
Company equipment with a book value of $400,000 for $560,000. The equipment had an estimated
remaining useful life of eight years on the date of the intercompany sale.
Polar Company reported net income from its independent operations (including sales to
affiliates) of $400,000, and Superior Company reported net income of $200,000 from its independent
operations in 2014 and 2015.

Required:
Calculate the controlling interest in consolidated net income for the years ended December 31, 2014,

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and December 31, 2015.

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Controlling interest in combined net income for the year ended December 31,2014:

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Gain to P from the sale of equipment = (560,000 – 400,000)

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= 160,000

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Depreciation charged on gain per year = (Gain/ Useful life)
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= (160,000/8)
=20,000
i = 80% of net incomep + (net incomes - Gain + Depreciation)
=0.8 x 200,000 + (400,000 – 160,000 +20,000)
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=420,000
aC s
vi y re

Controlling interest in combined net income for the year ended December 31,2014:
i = 80% of net incomep + (net incomes + Depreciation)
=0.8 x 200,000 + (400,000 +20,000)
=580,000
ed d
ar stu
is
Th
sh

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 EXERCISE 7-3: Workpaper Entries—Intercompany Sale of Equipment

Pearson Company owns 90% of the outstanding common stock of Spring Company. On January 1, 2014,
Spring Company sold equipment to Pearson Company for $200,000. Spring Company had purchased the
equipment for $300,000 on January 1, 2009, and had depreciated it using a 10% straight-line rate. The
management of Pearson Company estimated that the equipment had a remaining useful life of five years
on January 1, 2014. In 2015, Pearson Company reported $150,000 and Spring Company reported
$100,000 in net income from their independent operations (including sales to affiliates).

Required:
A. Prepare in general journal form the workpaper entries relating to the intercompany sale of equipment
that are necessary in the December 31, 2014, and December 31, 2015, consolidated financial statements
workpapers.
B. Calculate controlling interest in consolidated income for 2015.

A. December 31, 2014

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Equipment 100,000

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Gain on Sale of Equipment 50,000

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Accumulated Depreciation 150,000

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Accumulated Depreciation 10,000

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Depreciation Expenses 10,000
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December 31 ,201
Equipment 100,000
Beginning retained earnings from P 45,000
Non-controlling interest 5,000
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Accumulated Depreciation 150,000

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Accumulated Depreciation 20,000

Depreciation Expenses 10,000
Beginning retained earnings of P 9,000
Non-controlling interest 1,000
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B.
Gain to S from the sell of equipment = (300,000– 200,000)
= 100,000
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Depreciation on gain annually = (0.10 x 100,000)

= 10,000
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i =net incomep + 0.90 (net incomes + Depreciation)

=150,000 + 0.9 x (100,000 + 10,000)
=249,000
sh

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