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E 6-9 Upstream sale of equipment, noncontrolling interest Pan Corporation has an 80 percent interest...

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Accounting

E 6-9 Upstream sale of equipment, noncontrolling interest

Pan Corporation has an 80 percent interest in Sip Corporation, its only subsidiary. The 80 percent interest was acquired on July 1, 2011, for $800,000, at which time Sips equity consisted of $600,000 capital stock and $200,000 retained earnings. The excess of fair value over book value was assigned to buildings with a 20-year remaining useful life.

On December 31, 2013, Sip sold equipment with a remaining useful life of four years to Pan at a gain of $40,000. Pan Corporation had separate income for 2013 of $1,000,000 and for 2014 of $1,200,000.

Income and retained earnings data for Sip Corporation for 2013 and 2014 are as follows:

2013 2014
Retained earnings January 1 $300,000 $400,000
Add: Net income 200,000 220,000
Deduct: Dividends - 100,000 - 120,000
Retained earnings December 31 $400,000 $500,000

Required

  1. Compute Pan Corporations income from Sip, net income, and consolidated net income for each of the years 2013 and 2014.

  2. Compute the correct balances of Pans investment in Sip at December 31, 2013 and 2014, assuming no changes in Sips outstanding stock since Pan acquired its interest.

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