Question
Big Co. owns 60% of Little Co common stock. On 1/1/23 Big Co sold a patent to Little Co for $32,000. The patent had a
Big Co. owns 60% of Little Co common stock. On 1/1/23 Big Co sold a patent to Little Co for $32,000. The patent had a book value of $20,000 on that date, with a 4 year remaining useful life.
On 5/1/26 Little sells the patent to a third party for $20,000. Little Co reports earnings of $50,000 each year.
Big uses the FULL equity method to account for their investment in Little.
1. How much was the unrealized gain or loss on the sale?
2. How much unrealized gain or loss is carried forward to 2024?
3. What is the "income to the NC Interest" in 2023?
4. In 2026 the patent is sold to some third party. In the elimination entries related to this intercompany sale, what account ["Gain on sale", "Retained earnings", "Non-controlling interest", "Investment in Little", "Investment income"] would be credited, for what amount ["1,000", "2,000", "3,000", "4,000"] ?
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