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. What is consolidated net income for 2018? What is the parent's share of consolidated net income for 2018 if Ackerman owns only 90 percent of Brannigan? 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? What is the consolidated net income for 2019 if Ackerman reports $460,000 (does not include investment income) and Brannigan $155,600 in income? Assume that Brannigan is a wholly owned subsidiary and the equipment transfer was downstream.

Answer 1

a) consolidate net income = $456,400

Explanation:-

Net income - Ackerman	$440,000
Net income- Brannigan	$144,200
Excess amortization for unpatent technology	($5,400)
Remove intra entity gain on equipment ($340,000 -$187,000)	($153,000)
Remove excess depreciation created by inflated transfer price ($153,000/5)	$30,600
Consolidate net income	$456,400

b) consolidate net income to parent company = $442,520

Explanation:-

Net income calculated (in part a)	$456,400
Net income attributable to noncontrolling interest
Net income- Brannigan $144,200
Ecxess amortization ($5,400)
Adjusted net income $138,800
NI attributable to the noncontrolling interest (10%)	($13,880)
Consolidate net income to parent company	$442,520

c) consolidate net income to parent company = $454,760

Explanation:-

Net income calculated (in part a)	$456,400
NI attributable to noncontrolling interest ( see schedule 1)	($1,640)
Consolidate net income to parent company	$454,760

Schedule 1:- net income attributable to noncontrolling interests (including upstream transfer)

Reported subsidiary net income	$144,200
Excess amortization	($5,400)
Defer intra- entity gain on equipment transfer ($340,000 -$187,000)	($153,000)
Eliminate ecxess depreciation ($153,000/5)	$30,600
Brannigan adjusted net income	$16,400
Outside ownership	10%
Net income attributable to noncontrolling interest	$1,640

d) consolidate net income = $640,800

Explanation:-

Net income- Ackerman	$460,000
Net income- Brannigan	$155,600
Excess amortization	($5,400)
Eliminate excess depreciation stemming from transfer ($153,000/5)	$30,600
Consolidate net income	$640,800