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Nataly [62]
3 years ago
13

Parent Company holds 75 percent of Surrogate Company’s voting common shares. On December 31, 20X8, Parent recorded a loss of $20

,000 on the sale of equipment to Surrogate. At the time of the sale, the equipment’s estimated remaining economic life was eight years. Required: a. Will consolidated net income be increased or decreased when consolidation entries associated with the sale of equipment are made at December 31, 20X8? By what amount?
Business
1 answer:
Ne4ueva [31]3 years ago
5 0

Answer:

Net Increase in Net Income will be $18,125

Explanation:

In simple words, when we consolidate accounts we NEVER take account of inter-company transactions which leads to profits OR losses.

So now we will eliminate the effect of the loss recognized by the parent company and the entry would be as under:

Dr Depreciation for the year At Parent percentage XX

Dr Retained Earnings    (Balancing figure)                 XX

Cr Loss from sale of Equipment                                       XX

The debit balance of depreciation at the parent percentage shows that the equipment is still 75% owned by the parent company. Hence the 75% of the per year depreciation must be recognized for the year.

Increase as the loss is added back to Net Income = $20,000

<u>Less</u> Depreciation for the year At Parent percentage = $20,000/8 * 75%

= ($1,875)

Net Increase in Net Income = $20,000 - $1,875 = $18,125

And Double Entry is as under:

Dr Depreciation for the year At Parent percentage $1,875

Dr Retained Earnings   (Balancing Earnings)            $18,125

Cr Loss from sale of Equipment                                          $20,000

The depreciation and the loss will be settle in the Cost of Goods Sold in the consolidated income statement.

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A proposed new investment has projected sales of $557,000. Variable costs are 39 percent of sales, and fixed costs are $131,000;
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3 years ago
Akira's uncle is about to open a car dealership. His property can accommodate a total inventory of 264 vehicles. The auto manufa
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well, he has room for a total of 264 vehicles, he needs to have "five times as many cars as trucks", namely the cars : trucks ratio must be 5 to 1 or 5:1.

well, to change the total value to a ratio, we simply divide the total amount by the sum of the ratios, namely 264 ÷ (5+1), and distribute accordingly.

\bf \cfrac{cars}{trucks}\qquad 5:1\qquad \cfrac{5}{1}\qquad \qquad \cfrac{5\cdot \frac{264}{5+1}}{1\cdot \frac{264}{5+1}}\implies \cfrac{5\cdot 44}{1\cdot 44}\implies \cfrac{\stackrel{cars}{220}}{\underset{trucks}{44}}

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3 years ago
Early in its fiscal year ending December 31, 2021, San Antonio Outfitters finalized plans to expand operations. The first stage
WARRIOR [948]

Answer:

1) assets basis:

land = $1,221,151

equipment = $462,000

furniture and fixtures = $308,000

parking lots and landscaping = $370,000

building = $11,241,600

2) interest expense:

interest on notes payable issued to buy land = $52,812

interest expense on other notes payable = $479,733

total = $532,545

Explanation:

the basis of the land (not depreciable):

  • $370,000 paid in cash
  • PV of notes payable = $770,000 / 1.08² = $660,151
  • closing costs = $37,000
  • demolition of existing structures = $87,000
  • land clearing and grading = $67,000
  • total = $1,221,151

Demolition costs as well as land grading and clearing add to the basis of the land, they are not included as part of construction costs. Therefore, they cannot be capitalized and added to the building's basis. The land is one asset and the building is a separate one, you cannot mix them. Only construction costs incurred when building the building (I don't know how else to say it) can be considered as accumulated expenditures for interest capitalization. The same applies to land improvements, they cannot be included in the construction's accumulated expenditures, they are separate assets.

interest expense on notes payable = $660,151 x 8% = $52,812

basis of equipment, furniture and fixtures (depreciable assets):

  • equipment = ($522 / $870) x $770,000 = $462,000
  • furniture and fixtures = ($348 / $870) x $770,000 = $308,000

parking lots and landscaping (depreciable land improvements):

  • $370,000

total building construction expense during 2021:

  • May 1 : $3,750,000
  • July 30:  $2,350.000
  • September 1:  $1,920,000
  • October 1 : $2,820.000
  • total = $10,840,000

weighted construction expenditures 2021:

  • May 1 : $3,750,000  x 8/12 = $2,500,000
  • July 30:  $2,350.000  x 6/12 = $1,175,000
  • September 1:  $1,920,000  x 4/12 = $640,000
  • October 1 : $2,820.000 x 3/12 = $705,000
  • total = $5,020,000

capitalized interests = $5,020,000 x 8% = $401,600

basis of building:

  • total construction expenses = $10,840,000
  • capitalized interests = $401,600
  • total = $11,241,600

interest expense on other notes payable = ($6,100,000 x 8% x 8/12) + ($6,950,000 x 8%) - $401,600 = $479,733.33 ≈ $479,733

     

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