Question

Power Corporation owns 75 percent of Swift Companyâs stock. Swift provides health care services to its employees and those of Power. During 20X2, Power recorded $37,500 as health care expense for medical care given to its employees by Swift. Swiftâs costs incurred in providing the services to Power were $32,000.a. By what amount will consolidated net income change when the intercompany services are eliminated in preparing Powerâs consolidated statements for 20X2?b.What would be the impact of eliminating the intercompany services on consolidated net income if Power owned 100 percent of Swiftâs stock rather than 75 percent?c.If in its consolidated income statement for 20X2 Power had reported total health care costs of $72,000, what was the cost to Swift of providing health care services to its own employees?

Answer 1

Answer:

Explanation:

a). There will be no effect on net income on after consolidation.

b). On the off chance that P possesses 100% of S Stock, at that point inter-company administrations must be wiped out. Along these lines an adjustment in the degree of responsibility for auxiliary won't influence the measure of end on merged total compensation.

c). Computation of cost to Swift

        $72,000 - $32,000

       = $50,000