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Consolidated Net Income - Journal Entries

2. On January 1, 2003, Musial Corp. sold equipment to Martin Inc. (a wholly-owned subsidiary) for $168,000 in cash. The equipment had originally cost $140,000 but had a book value of only $98,000 when transferred. On that date, the equipment had a five-year remaining life. Depreciation expense was calculated using the straight-line method.

Musial earned $308,000 in net income in 2003 (not including any investment income) while Martin reported $126,000. Assume there is no amortization related to the original investment.

Required:
What is consolidated net income for 2003?

3. A U.S. company executed a series of transactions in a foreign country during 2004. The appropriate exchange rates during 2004 were as follows:

Exchange
Date Rate
June 1, 2004 $.62 = §1
August 1, 2004 $.66 = §1
October 1, 2004 $.72 = §1
November 1, 2004 $.77 = §1
December 31, 2004 $.78 = §1

The following transactions occurred during 2004:

June 1 Bought inventory of §20,000 on credit.
Aug. 1 Sold all inventory for §30,000 on credit.
Oct. 1 Paid §10,000 on the June 1 purchase.
Nov. 1 Collected §10,000 from the August 1 sale.

Required:
Prepare all journal entries in U.S. dollars along with any December 31, 2004 adjusting entries.

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Solution Summary

On January 1, 2003, Musial Corp. sold equipment to Martin Inc. (a wholly-owned subsidiary) for $168,000 in cash. The equipment had originally cost $140,000 but had a book value of only $98,000 when transferred. On that date, the equipment had a five-year remaining life. Depreciation expense was calculated using the straight-line method.

$2.19