Elimimation Flashcards
Elimimation
Elims are done to nullify the effect of Intercomapny transactions.
IC trans include - IC SALES, IC REVENUES AND EXP, IC DEBT AND IC STOCK OWNERSHIP.
Ic debt offsets loans, notes payable and notes receivable as well as interest exp and interest revenue.
IC REV eliminates the sales between two entities. Means related revenues, COGS and profits are eliminated.
IC stock ownership eliminates the ownership interest of parent co in its subsidiary.
Row owns 80% of cowan cos outstanding common stock. On Nov 1st row advanced 1,00,000 in cash to Cowan. What amount is reported in consolidated balance sheet of Rowe as of dec 31st.
All intercompany payables and receivables are eliminated from the consolidated statements.
Peterson Co. owns 100% of the outstanding common stock of Silver Corp. On January 1, year 3, Peterson sold equipment to Silver for $120,000, which was originally purchased on January 1, year 1 for $100,000. Peterson was depreciating the equipment over 10 years using straight-line depreciation. There was no salvage value. Silver decides to depreciate the equipment over eight years, also using straight-line depreciation with no salvage value. Assume all other appropriate year-end and income tax journal entries have been made.
Calculate the gain on sale of the asset (equipment) to be eliminated for the purpose of consolidation for the year ended December 31, year 3.
The original cost of equipment for Peterson = $100,000. Accumulated depreciation as of January 1, year 3 = $20,000 [($100,000/10)x2]. Hence the value of the equipment in the books of Peterson as on January 1, Year 3 = Cost – accumulated depreciation = $100,000 – $20,000 = $80,000
Sale price to Silver = $120,000
Profit realized on sale of asset = $120,000-($100,000-$20,000) = $40,000
