On January 1, 2018, Ackerman sold equipment to Brannigan (a wholly owned subsidi
ID: 2518914 • Letter: O
Question
On January 1, 2018, Ackerman sold equipment to Brannigan (a wholly owned subsidiary) for $340,000 in cash. The equipment had originally cost $306,000 but had a book value of only $187,000 when transferred. On that date, the equipment had a five-year remaining life. Depreciation expense is computed using the straight-line method. Ackerman reported $440,000 in net income in 2018 (not including any investment income) while Brannigan reported $144,200. Ackerman attributed any excess acquisition-date fair value to Brannigan's unpatented technology, which was amortized at a rate of $5,400 per year.
a. What is consolidated net income for 2018?
b. What is the parent's share of consolidated net income for 2018 if Ackerman owns only 90 percent of Brannigan?
c. What is the parent's share of consolidated net income for 2018 if Ackerman owns only 90 percent of Brannigan and the equipment transfer was upstream?
Amounts a. Consolidated net income b. Consolidated net income to parent company c. Consolidated net income to parent company d. Consolidated net incomeExplanation / Answer
A sold to B (Fair Value) 340,000 Cost 306,000 BV 187,000 Excess FV 153,000 Depreciation for B 340000/5 68,000 Remaining life in Yrs 5 SLM A B Comment Net Income 440,000 144,200 Assume profit is after depreciation Add: Investment income 153,000 This is recognized as asset for B so not expense 593,000 144,200 Answer a. Consolidated profit 737,200 b. A's Share A 593,000 Share in B 129,780 722,780 c. Upstream i.e. B sell to A A B Net Income 440,000 144,200 Assume profit is after depreciation Add: Investment income 153,000 440,000 297,200 A's Share A 440,000 Share in B 267,480 707,480 d. Downstream i.e. A sell to B A B Net Income 460,000 155,600 Assume profit is after depreciation Add: Investment income 153,000 613,000 155,600 Consolidated profit 768,600