Pepe, Incorporated acquired 60% of Devin Company on January 1, 2010. On that date, Devin sold...

Question:

Pepe, Incorporated acquired 60% of Devin Company on January 1, 2010. On that date, Devin sold equipment to Pepe, for $45,000. The equipment had a cost of $120,000 and accumulated depreciation of $66,000, with a remaining life of 9 years. Devin reported net income of $300,000 and $325,000, for 2010 and 2011, respectively. Pepe uses the equity method to account for its investment in Devin. Show all work.

1) Compute the income from Devin, reported on Pepe's books for 2010.

2) Compute the income from Devin, reported on Pepe's books for 2011.

3) Compute the noncontrolling interest, in the net income of Devin for 2010.

Investment in Subsidiaries with inter company sales of fixed asset.

When two companies enters into a business combination, and had inter-company sales of fixed asset with each other, they are required to eliminate the gain or loss on the sale transaction at the year of sales as well as the depreciation adjustments.

Answer and Explanation:

1.

Net Income, 2010 300,000
Loss on sale 9,000
Adjustment to depreciation -1,000
Adjusted net income 308,000

Eliminate the gain or loss on sale at the year of sale.

2.

Net Income, 2011 325,000
Adjustment to depreciation -1,000

Adjusted net income 324,000


3.

Net Income, 2010 300,000
Loss on sale 9,000
Adjustment to depreciation -1,000
Adjusted net income 308,000
40%
NCIIncome 123,200

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