Question
Baywatch Industries has owned 80 percent of Tubberware Corporation for many years. On January 1, 20X6, Baywatch paid Tubberware $246,000 to acquire equipment that Tubberware
Baywatch Industries has owned 80 percent of Tubberware Corporation for many years. On January 1, 20X6, Baywatch paid Tubberware $246,000 to acquire equipment that Tubberware had purchased on January 1, 20X3, for $276,000. The equipment is expected to have no scrap value and is depreciated over a 15-year useful life. |
Baywatch reported operating earnings of $120,000 for 20X8 and paid dividends of $40,000. Tubberware reported net income of $42,000 and paid dividends of $24,000 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.) |
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