ACC 703 Chapter Notes - Chapter 7: Income Statement, Book Value, Retained Earnings

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Chapter 7a intercompany profits in depreciable assets. Sub purchased for ,500, but immediately sold to parent for ,800. Taxes paid were (40%). Useful life is 1. 5 years: parent records depreciation on december 31, year 1. Before- tax income is reduced. Tax expense reduced by : reduction of depreciation expense. Increases before- tax income by . Analysis and interpretation of financial statements. Balance sheet on the consolidated statement. Intercompany sale of a used depreciable asset. Accumulated depreciation on july 1, year 1 is ,500, and carrying amount is ,500: upon sale: cash. 3,500: consolidated working papers would gross- up equipment and accumulated depreciation by ,500 to match original cost to consolidated entity. This will be done for each year that equipment is not sold to outsiders. Intercompany profits on depreciable assets are realized as the assets are used over their useful lives. Comparison of realization of inventory and equipment profits over a two- .

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