Question - Baywatch Industries has owned 80 percent of Tubberware Corporation for many years. On January 1, 20X6, Baywatch paid Tubberware $258,000 to acquire equipment that Tubberware had purchased on January 1, 20X3, for $279,000. The equipment is expected to have no scrap value and is depreciated over a 15-year useful life.
Baywatch reported operating earnings of $110,000 for 20X8 and paid dividends of $45,000. Tubberware reported net income of $44,000 and paid dividends of $25,000 in 20X8.
a) Compute the amount reported as consolidated net income for 20X8.
b) By what amount would consolidated net income change if the equipment sale had been a downstream sale rather than an upstream sale?
c) Prepare the consolidation entry or entries required to eliminate the effects of the intercompany sale of equipment in preparing a full set of consolidated financial statements at December 31, 20X8.