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    Advch6 2

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    Huda AL-Halhuli
    This document discusses intra-entity transfers of depreciable assets between a parent company and its subsidiary. It provides examples of different types of transfers, including downstream and upstream transfers. For each example, it gives the journal entries for both companies and calculates the related equity accounts over multiple periods.

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    Advch6 2

    Uploaded by

    Huda AL-Halhuli
    38 views8 pages
    This document discusses intra-entity transfers of depreciable assets between a parent company and its subsidiary. It provides examples of different types of transfers, including downstream and upstream transfers. For each example, it gives the journal entries for both companies and calculates the related equity accounts over multiple periods.

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    advch6-2

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    This document discusses intra-entity transfers of depreciable assets between a parent company and its subsidiary. It provides examples of different types of transfers, including downstream and upstream transfers. For each example, it gives the journal entries for both companies and calculates the related equity accounts over multiple periods.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    38 views8 pages

    Advch6 2

    Uploaded by

    Huda AL-Halhuli
    This document discusses intra-entity transfers of depreciable assets between a parent company and its subsidiary. It provides examples of different types of transfers, including downstream and upstream transfers. For each example, it gives the journal entries for both companies and calculates the related equity accounts over multiple periods.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    You are on page 1of 8

    Dr.

    Nidal Zalloum Advanced Accounting last update 7/25/2020

    Ch6
    Intercompany Profit Transactions – Plant Assets

    ➢ Intra-entity Transactions -- Depreciable Asset Transfers


    - Adjust asset and depreciation down for gains
    - Adjust asset and depreciation up for losses

    ▪ Downstream & Upstream Depreciable Asset Sales


    Downstream Examples

    Example (1): Hana owns 90% of Ahmad, On January 1, 2017, Hana sold
    Ahmad equipment that had a 3-year remaining life and was being depreciated on
    the straight-line method with no salvage value. This equipment was transferred
    at an JD15,000 price, although it had an original JD40,000 cost to Hana and a
    JD12,000 book value at the date of exchange. Ahmad's separate income was
    JD20,000 in 2017, JD30,000 in 2017, and JD40,000 in 2019.

    Required

    Answer the following questions:

    1- Prepare Hana’s journal entry on January 1, 2017.


    2- Prepare Ahmad’s journal entry on January 1, 2017.
    3- What is the Equity in Subsidiary Earnings account balance for 2017 to
    2019?
    4- What is the Noncontrolling interest share for 2017 to 2019?
    5- Prepare Hana’s Financial Records for 2017 to 2019.
    6- Prepare the worksheet entries required at December 31, 2017, 2018, and
    2019 by the transfers of equipment.
    SOLUTION
    1- Hana’s journal entry on January 1, 2017:
    Cash 15,000
    Accumulated depreciation 28,000
    equipment 40,000
    Gain on sale of equipment 3,000
    2- Ahmad’s journal entry on January 1, 2017.
    equipment 15,000
    Cash 15,000

    -1-
    Dr. Nidal Zalloum Advanced Accounting last update 7/25/2020

    3- Equity in Subsidiary Earnings


    Equity in Subsidiary Earnings 2017 2018 2019
    90% * income 18,000 27,000 36,000
    - Unrealized gain on sale of equipment (3,000)
    + Realized gain on sale of equipment 1,000 1,000 1,000
    16,000 28,000 37,000
    4- noncontrolling interest share
    Noncontrolling interest share 2017 2018 2019
    10% * income 2,000 3,000 4,000
    5- Hana’s Financial Records for 2017 to 2019(in thousands).
    2017 2018 2019
    Investment in Ahmad 16 Investment in Ahmad 28 Investment in Ahmad 37
    Equity in Subsidiary Earnings 16 Equity in Subsidiary Earnings 28 Equity in Subsidiary Earnings 37

    6- Hana's elimination worksheet entry


    Worksheet entries for 2017
    Gain on sale of equipment 3,000
    equipment 25,000
    Accumulated depreciation 28,000

    Accumulated depreciation 1,000


    Depreciation expense 1,000

    Worksheet entries for 2018


    Investment in Ahmad 3,000
    equipment 25,000
    Accumulated depreciation 28,000

    Accumulated depreciation 2,000


    Investment in Ahmad 1,000
    Depreciation expense 1,000

    -2-
    Dr. Nidal Zalloum Advanced Accounting last update 7/25/2020

    Worksheet entries for 2019


    Investment in Ahmad 3,000
    equipment 25,000
    Accumulated depreciation 28,000

    Accumulated depreciation 3,000


    Investment in Ahmad 2,000
    Depreciation expense 1,000

    Example (2): Hana owns 90% of Ahmad, On January 1, 2017, Hana sold
    Ahmad equipment that had a 3-year remaining life and was being depreciated on
    the straight-line method with no salvage value. This equipment was transferred
    at an JD9,000 price, although it had an original JD40,000 cost to Hana and a
    JD12,000 book value at the date of exchange. Ahmad's separate income was
    JD20,000 in 2017, JD30,000 in 2017, and JD40,000 in 2019.

    Required
    Answer the following questions:

    1- Prepare Hana’s journal entry on January 1, 2017.


    2- Prepare Ahmad’s journal entry on January 1, 2017.
    3- What is the Equity in Subsidiary Earnings account balance for 2017 to
    2019?
    4- What is the Noncontrolling interest share for 2017 to 2019?
    5- Prepare Hana’s Financial Records for 2017 to 2019.
    6- Prepare the worksheet entries required at December 31, 2017, 2018, and
    2019 by the transfers of equipment.

    SOLUTION

    1- Hana’s journal entry on January 1, 2017:

    Cash 9,000
    Accumulated depreciation 28,000
    Loss on sale of equipment 3,000
    equipment 40,000

    -3-
    Dr. Nidal Zalloum Advanced Accounting last update 7/25/2020

    2- Ahmad’s journal entry on 1, 2017.

    equipment 9,000
    Cash 9,000

    3- Equity in Subsidiary Earnings

    Equity in Subsidiary Earnings 2017 2018 2019


    90% * income 18,000 27,000 36,000
    + Unrealized Loss on sale of equipment 3,000
    - Realized Loss on sale of equipment (1,000) (1,000) (1,000)
    20,000 26,000 35,000

    4- Noncontrolling interest share

    Noncontrolling interest share 2017 2018 2019


    10% * income 2,000 3,000 4,000

    5- Hana’s Financial Records for 2017 to 2019(in thousands).

    2017 2018 2019


    Investment in Ahmad 20 Investment in Ahmad 26 Investment in Ahmad 35
    Equity in Subsidiary Earnings 20 Equity in Subsidiary Earnings 26 Equity in Subsidiary Earnings 35

    6- Hana's elimination worksheet entry

    Worksheet entries for 2017

    equipment 31,000
    Accumulated depreciation 28,000
    Loss on sale of equipment 3,000

    Depreciation expense 1,000


    Accumulated depreciation 1,000
    -4-
    Dr. Nidal Zalloum Advanced Accounting last update 7/25/2020

    Worksheet entries for 2018

    equipment 31,000
    Accumulated depreciation 28,000
    Investment in Ahmad 3,000

    depreciation expense 1,000


    Investment in Ahmad 1,000
    Accumulated Depreciation 2,000

    Worksheet entries for 2019

    equipment 31,000
    Accumulated depreciation 28,000
    Investment in Ahmad 3,000

    depreciation expense 1,000


    Investment in Ahmad 2,000
    Accumulated Depreciation 3,000

    Example (3): Hana owns 90% of Ahmad, On July 1, 2017, Hana sold Ahmad
    equipment that had a 3-year remaining life and was being depreciated on the
    straight-line method with no salvage value. This equipment was transferred at an
    JD15,000 price, although it had an original JD40,000 cost to Hana and a
    JD12,000 book value at the date of exchange. Ahmad's separate income was
    JD20,000 in 2017, JD30,000 in 2017, and JD40,000 in 2019.

    Required
    Answer the following questions:
    1- Prepare Hana’s journal entry on July 1, 2017.
    2- Prepare Ahmad’s journal entry on July 1, 2017.
    3- What is the Equity in Subsidiary Earnings account balance for 2017 to
    2019?
    4- What is the noncontrolling interest share for 2017 to 2019?
    -5-
    Dr. Nidal Zalloum Advanced Accounting last update 7/25/2020

    5- Prepare Hana’s Financial Records for 2017 to 2019.


    6- Prepare the worksheet entries required at December 31, 2017, 2018, and
    2019 by the transfers of equipment.

    SOLUTION

    1- Hana’s journal entry on July 1, 2017:


    Cash 15,000
    Accumulated depreciation 28,000
    equipment 40,000
    Gain on sale of equipment 3,000

    2- Ahmad’s journal entry on July 1, 2017.


    equipment 15,000
    Cash 15,000

    3- Equity in Subsidiary Earnings


    Equity in Subsidiary Earnings 2017 2018 2019
    90% * income 18,000 27,000 36,000
    - Unrealized gain on sale of equipment (3,000)
    + Realized gain on sale of equipment 500 1,000 1,000
    15,500 28,000 37,000

    4- noncontrolling interest share

    noncontrolling interest share 2017 2018 2019


    10% * income 2,000 3,000 4,000

    5- Hana’s Financial Records for 2017 to 2019(in thousands).

    2017 2018 2019


    Investment in Ahmad 15.5 Investment in Ahmad 28 Investment in Ahmad 37

    Equity in Subsidiary Earnings 15.5 Equity in Subsidiary Earnings 28 Equity in Subsidiary Earnings 37

    -6-
    Dr. Nidal Zalloum Advanced Accounting last update 7/25/2020

    6- Hana's elimination worksheet entry

    Worksheet entries for 2017

    Gain on sale of equipment 3,000


    equipment 25,000
    Accumulated depreciation 28,000

    Accumulated depreciation 500


    Depreciation expense 500

    Worksheet entries for 2018

    Investment in Ahmad 3,000


    equipment 25,000
    Accumulated depreciation 28,000

    Accumulated depreciation 1,500


    Investment in Ahmad 500
    Depreciation expense 1,000

    Worksheet entries for 2019

    Investment in Ahmad 3,000


    equipment 25,000
    Accumulated depreciation 28,000

    Accumulated depreciation 2,500


    Investment in Ahmad 1,500
    Depreciation expense 1,000

    -7-

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