Question
Big owns 60% of Little Co. For each of the following intercompany transactions, prepare the elimination entries ARISING FROM THIS TRANSACTION for the years indicated,
Big owns 60% of Little Co. For each of the following intercompany transactions, prepare the elimination entries ARISING FROM THIS TRANSACTION for the years indicated, as well as any equity method entries needed (if Big uses the partial equity method then no equity method entries are needed, right?). Also, assuming that Little has reported earnings of $50,000 in each year, compute the income to the NC Interest in each year.
a. On 1/1/05 Big sells land to Little for $50,000. The land had cost Big $30,000. Little resold the land to a 3rd party in 2007. Big uses the full equity method.
- Elimination entries for 2005, 2006, and 2007.
- Income to NC Interest for 2005, 2006, and 2007
- Equity method entries for 2005 - 2007
b. On 12/31/06 Little sells a patent to Big for $50,000. The patent was on Littles books at $20,000 on that date, and had four years left (2007 through 2010). Little had already recorded 2006s amortization expense when they recorded the sale of the patent. Big uses the partial equity method.
- Elimination entries for 2006 and 2007.
- Income to NC Interest for 2006 and 2007
- Equity method entries for 2006, 2007
c. During 2016, Big sells inventory to Little for $60,000. Big had paid $40,000 for the goods. 70% of the merchandise was resold to a 3rd party in 2016; of the remaining 30%, 1/3 was resold in 2017 and the other 2/3 in 2018. Big uses the partial equity method.
- Elimination entries for 2016 and 2017.
- Income to NC Interest for 2016 and 2017
- Equity method entries for 2016 and 2017
d. On 1/1/05 Little issued $100,000 of 10%, 10 year bonds at 103. On 12/31/09 Big purchased all of these bonds on the open market at 101. Big and Little both use straight-line amortization. Big uses the full equity method.
- Elimination entries for 2009, 2010, and 2011.
- Income to NC Interest for 2009, 2010, and 2011
- Equity method entries for 2009 - 2011
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