Question
Baywatch Industries has owned 80 percent of Tubberware Corporation for many years. On January 1, 20X6, Baywatch paid Tubberware $219,000 to acquire equipment that Tubberware
Baywatch Industries has owned 80 percent of Tubberware Corporation for many years. On January 1, 20X6, Baywatch paid Tubberware $219,000 to acquire equipment that Tubberware had purchased on January 1, 20X3, for $243,000. The equipment is expected to have no scrap value and is depreciated over a 15-year useful life. Baywatch reported operating earnings of $110,000 for 20X8 and paid dividends of $35,000. Tubberware reported net income of $43,000 and paid dividends of $23,000 in 20X8. (Leave no cell blank, enter "0" wherever required.)
Required:
a. Compute the amount reported as consolidated net income for 20X8.
b. By what amount would consolidated net income change if the equipment sale had been a downstream sale rather than an upstream sale?
c. Prepare the consolidation entry or entries required to eliminate the effects of the intercompany sale of equipment in preparing a full set of consolidated financial statements at December 31, 20X8. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
THE ANSWER TO A IS NOT 146,040
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