Question
E 6-9 Upstream sale of equipment, noncontrolling interest Pan Corporation has an 80 percent interest in Sip Corporation, its only subsidiary. The 80 percent interest
E 6-9 Upstream sale of equipment, noncontrolling interest
Pan Corporation has an 80 percent interest in Sip Corporation, its only subsidiary. The 80 percent interest was acquired on July 1, 2011, for $800,000, at which time Sips equity consisted of $600,000 capital stock and $200,000 retained earnings. The excess of fair value over book value was assigned to buildings with a 20-year remaining useful life.
On December 31, 2013, Sip sold equipment with a remaining useful life of four years to Pan at a gain of $40,000. Pan Corporation had separate income for 2013 of $1,000,000 and for 2014 of $1,200,000.
Income and retained earnings data for Sip Corporation for 2013 and 2014 are as follows:
2013 | 2014 | |
Retained earnings January 1 | $300,000 | $400,000 |
Add: Net income | 200,000 | 220,000 |
Deduct: Dividends | - 100,000 | - 120,000 |
Retained earnings December 31 | $400,000 | $500,000 |
Required
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Compute Pan Corporations income from Sip, net income, and consolidated net income for each of the years 2013 and 2014.
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Compute the correct balances of Pans investment in Sip at December 31, 2013 and 2014, assuming no changes in Sips outstanding stock since Pan acquired its interest.
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