Chapter 7, Practice Question 03

Price Corp. owns 80% of the common stock of Stairways to Heaven. Stairways sold an asset with a carrying value of $10,000 to its parent for $15,000 on January 1, 2006. Price intended to use the asset for five years but actually sold it on December 31, 2007, to a third party for $17,000. If no adjustments were made for this intercompany transaction in the consolidating process, identify the amounts (and direction) of balance sheet misstatements at the end of 2007.

The noncontrolling interest is overstated by $2,000.

No misstatements occur.

Retained earnings and controlling interest are both overstated by $2,400.

The noncontrolling interest is overstated by $600.