Nipissing University **We aren't endorsed by this school
ACCT 4866
Nov 4, 2023
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1. A company acquires all of the common shares of another company on January 1, 20X1. The net assets of the subsidiary company included a building that originally cost $375,000. The accumulated depreciation related to the building on the acquisition date was $125,000 (resulting from depreciation expense of $12,500 per year). The fair value of the building on the acquisition date was $300,000. Thus, the building accounts for a differential of $50,000. The building has a remaining economic life of 10 years from the acquisition date. The accumulated depreciation balance on the investor company's books at the end of 20X1 is $275,000. Calculate the balance of the accumulated depreciation account in the consolidated financial statements (assuming the company includes the accumulated depreciation consolidation entry in the consolidation process). Consolidated accumulated depreciation = $275,000 + $125,000 + $12,500 - 125,000 + ($50,000 ÷ 10) = $292,500 2. Cube Automobiles Corp. owns 80% of Club Motor Corp.'s common shares. On January 1, 20X2, Cube Automobiles purchases a building from a non- associate for $50,000. On January 1, 20X5, it transfers the building to Club motors for $45,000. Assuming that the depreciation on the building to date is $15,000, Cube's gain on the sale of the building is Book value of building = Original cost - Accumulated depreciation for the period = $50,000 -$15,000= $35,000; Gain on sale = Sale price - Book value as on the date of sale = $45,000 — $35,000 = $10,000. 3. Lutetium Pharma Corp. holds 80% of Erbium Chemicals Inc.'s common shares. On January 1, 20X1, Erbium Chemicals purchased a building from a non-associate for $80,000. On January 1, 20X3, the book value of the building was $64,000. As of that date, Erbium Chemicals sold the building to Lutetium Pharma for $65,000. For the year 20X3, Erbium Chemicals recorded net income of $76,000. This net income includes the unrealized gain on the upstream sale. Calculate the non-controlling interest's share of Erbium Chemicals realized net income Gain on sale = Sale price - Book value = $65,000 - $64,000 = $1,000; Erbium's realized net income = $76,000 - $1,000 = $75,000; NCI share Erbium's realized income = $75,000 × 20% = $15,000. 4. On January 1, 20X3, Tow Products Inc. purchased a building for $60,000. It sold the building to its subsidiary, Breeze Commodities Inc., for $50,000 on January 1, 20X5. The group depreciates buildings using the straight-line method assuming a 10-year useful life and that the buildings do not have a salvage value. Calculate the gain or loss on the intercompany transaction. Book value of building on January 1, 20X5 = Original cost - Depreciation 2 years of depreciation = $60,000 - ($6,000 × 2) = $48,000; Gain on sale to Breeze Commodities = Sale price - Book value = $50,000 - $48,000 = $2,000.
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