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CHAPTER 6
SOLUTIONS TO EXERCISES AND PROBLEMS
EXERCISES
E6.1 Intercompany Land Transactions
a.Consolidation Working Paper
2010Gain on sale of land 50,000
Land 50,000To eliminate the unconfirmed gain on the intercompany sale of land and reduce the land account to original acquisition cost.
2011Investment in Sagamore 50,000
Land 50,000To add the prior year unconfirmed gain to the investment account to maintain equivalence with the retained earnings of Sagamore and reduce the land account to original acquisition cost.
b.2012Investment in Sagamore 50,000
Gain on sale of land 50,000To include the prior year intercompany gain, now confirmed, in current year income and restate the investment account by offsetting the previous reduction while the gain was unconfirmed.
E6.2 Intercompany Land Transactions
1. In a prior year, the subsidiary sold land to the parent at a gain of $20,000. The parent still holds the land.
2. Current year intercompany sale of land at a loss of $14,000.3. In prior year, the parent sold land to its subsidiary at a gain of $30,000. The subsidiary
still holds the land.4. In a prior year, the subsidiary sold land to the parent at a gain of $18,000. The parent
Consolidation Working PaperRetained earnings, Converse -1/1 10,000Investment in Converse 18,000
Cost of goods sold 28,000To eliminate the intercompany profit on upstream intercompany sales, assumed confirmed during 2011, from the beginning inventory. Prior year profits on upstream sales are removed from Converse’s beginning retained earnings; $10,000 = $50,000 x 20%. Prior year profits on downstream sales are added to Nike’s Investment in Converse as they had been removed from the Investment account via the 2011 equity accrual; $18,000 = $78,000 - 78,000/1.3.
Sales 840,000Cost of goods sold 840,000
To eliminate intercompany merchandise sales made during 2011.
Cost of goods sold 29,000Inventory 29,000
To eliminate unconfirmed intercompany profit from ending inventory; $29,000 = ($40,000 x 20% = $8,000) + [91,000 - (91,000/1.3) = $21,000].
E6.4 Analysis of Land Sale Alternatives
Under a direct sale of the land by Sawyer to the developer, Sawyer reports a gain of $3,900,000. The noncontrolling interest in net income is $780,000 (= .2 x $3,900,000) and the distribution to the noncontrolling shareholder is $390,000 (= .5 x $780,000).
Under the intercompany sale, even though the gain is larger, it is eliminated in consolidation, and does not enter into the noncontrolling interest in net income. As long as the parent holds the land (which it plans to do under a long-term lease), the gain is not reflected in noncontrolling interest in net income. Moreover, the income from the lease is the parent’s income, so the noncontrolling interest is unaffected. Under this approach, the noncontrolling stockholder receives nothing.
Hence, the direct sale of the land by Sawyer to the developer generates the most dividends for the noncontrolling stockholder.
To eliminate the excess depreciation recorded by Spencer in 2010 ($50,000/5).
Equipment 150,000Accumulated depreciation 150,000
To restate the equipment and accumulated depreciation accounts to their original acquisition cost basis.
b. 2011 Consolidation Working Paper Investment in Spencer 40,000Accumulated depreciation 10,000
Equipment 50,000To eliminate the amount of intercompany gain unconfirmed in prior years, remove the excess depreciation recorded in prior years and reduce the equipment to its net book value at date of intercompany sale.
E6.7 Intercompany Transactions, Equity Method Income and Noncontrolling Interest
a.
TotalEquity in NI
Noncontrolling Interest in NI
Salley reported net income $7,000,000 $5,600,000 $1,400,000Amortization of identifiable intangibles (1,750,000) (1,400,000) (350,000)Downstream loss on land 300,000 300,000Unconfirmed profit in end. inventory - upstream (400,000) (320,000) (80,000)Confirmed profit in beg. inventory - upstream 250,000 200,000 50,000Confirmed profit on downstream equipment sale(= $800,000/10) 80,000 80,000 _______
$5,480,000 $4,460,000 $1,020,000 b. Consolidation Working PaperLand 300,000
Loss on sale of land 300,000 To eliminate the unconfirmed loss on downstream land sale.
Cost of goods sold 400,000Inventory 400,000
To eliminate the unconfirmed profit in ending inventory due to upstream sales.
Retained earnings—Salley, beg. 250,000Cost of goods sold 250,000
To recognize the confirmed profit in beginning inventory due to upstream sales
Investment in Salley 560,000Accumulated depreciation 240,000
Equipment 800,000To eliminate the unconfirmed profit as of the beginning of the year on downstream equipment sales (=7/10 x $800,000).
E6.8 Income Effects of Unconfirmed Intercompany Profits
ItemDecrease in consolidated net
income to the controlling interestDecrease in noncontrolling
interest in net income1. $ 200,000 -- 2. 240,000 $ 60,000 3. 800,000 -- 4. 520,000 130,000
$1,760,000 $190,000
E6.9 Consolidated Income Statement—Intercompany Transactions
(all amounts in thousands)a.
Total Equity in NI
Noncontrolling Interest in NI
SCO’s reported net income $200,000 $ 150,000 $ 50,000Amortization of identifiable intangibles (36,000) (27,000) (9,000)Unconfirmed profit in end. inv. - downstream (50,000) (50,000)Unconfirmed profit in end. inv. - upstream (40,000) (30,000) (10,000)
$ 74,000 $ 43,000 $ 31,000 b.
PCO and SCOConsolidated Income Statement
Sales ($2,000,000 + $1,200,000 - $400,000) $2,800,000 Cost of goods sold ($1,000,000+$700,000-$400,000+$50,000+$40,000) (1,390,000)Other expenses ($600,000 + $300,000 + $36,000) (936,000)Consolidated net income $ 474,000 Noncontrolling interest in net income (31,000)Consolidated net income to controlling interest $ 443,000
E6.10 Consolidated Income Statement, Intercompany Transactions
a.
TotalEquity in NI
Noncontrolling Interest in NI
Star’s reported net income $ 900,000 $ 720,000 $ 180,000Amortization of identifiable intangibles (100,000) (80,000) (20,000)Goodwill impairment loss (200,000) (160,000) (40,000)Confirmed profit in beg. inv. - upstream 110,000 88,000 22,000Unconfirmed profit in end. inv. - downstream (60,000) (60,000) --
Sales ($9,000,000 + $4,000,000 – $1,000,000) $ 12,000,000Cost of goods sold ($6,000,000+$2,500,000–$1,000,000–$110,000+$60,000)
( 7,450,000)
Other expenses ($2,000,000 + $600,000 + $100,000 + $200,000) ( 2,900,000)Consolidated net income 1,650,000Less consolidated net income attributed to noncontrolling interest ( 142,000)Consolidated net income attributed to controlling interest $ 1,508,000
E6.11 Ratio Analysis of Enron-Type Intercompany Transactions
Consolidation (2) eliminates the intercompany revenue and the unconfirmed intercompany gain, voiding the internal transaction for financial reporting purposes. Ratios look better when the transaction with the SPE is considered to be arm’s length and consolidation is avoided (1).
Without consolidation (1) Sponsor recognizes the $3,500 cash but not the liability, but in consolidation (2) the liability is also counted along with Sponsoree’s assets and liabilities. Sponsoree is more leveraged than Sponsor; Sponsoree’s separate TL/TA = $3,600/$4.000 = .9, while Sponsor’s separate TL/TA = $6,000/$10,000 = .6. Therefore consolidating Sponsoree causes consolidated TL/TA to be higher than Sponsor’s separate TL/TA.
Enron apparently used this technique to recognize gains on its own stock as income, something not permitted by GAAP. Without consolidation (1), Sponsor’s income includes 25% of the “gain” on its stock recognized in Sponsoree’s income and booked by Sponsor via the equity method. With consolidation (2) the “stock issuance” is voided and neither entity recognizes income on the appreciation of Sponsor’s stock.
E6.12 Comprehensive Consolidated Net Income
Schedule to determine consolidated net income (amounts in thousands)Brown’s net income from its own operations $ 40,000Shoes.com’s net income from its own operations 25,000Increase in cost of goods sold from sale of revalued inventory (700)Depreciation expense reduction from overvaluation adjustment 200Increase in fair value of contingent consideration liability (220)Amortization of premium on long-term debt (reduction in interest expense) 90Impairment loss on capitalized in-process R&D (800)Increase in cost of goods sold due to eliminated upstream ending inventory profit (330)Eliminated loss on downstream sale of patent 400Increase in patent amortization expense on the patent ($400/5) (80)Consolidated net income 63,560Less consolidated net income attributed to noncontrolling interest* (2,346)Consolidated net income attributed to controlling interest $ 61,214
P6.1 Consolidation Working Paper, Noncontrolling Interest, Intercompany Inventory Transactions
a. Calculation of goodwill:Acquisition cost $ 3,000,000Fair value of noncontrolling interest 275,000Total fair value 3,275,000Book value of Seaport $ 2,000,000Previously unrecorded intangibles __500,000 2,500,000Goodwill $ 775,000
Allocation of goodwill between controlling and noncontrolling interests:Total goodwill $ 775,000Peninsula’s goodwill: $3,000,000 – 90%($2,500,000) 750,000Goodwill to noncontrolling interest $ 25,000Proportions: $750/$775 to controlling interest and $25/$775 to the noncontrolling interest
b. Calculation of 2010 Equity in Net Income and Noncontrolling Interest in Net Income (in thousands):
P6.2 Consolidation Working Paper, Noncontrolling Interest, Intercompany Merchandise Transactions
(all amounts thousands)
a. Calculation of goodwill:Acquisition cost $ 120,000Fair value of noncontrolling interest 35,000 Total fair value $ 155,000Book value of Wholesome $ 74,000Revaluations: Plant and equipment, net (15,000) Intangibles 25,000 Long-term debt (4,000) 80,000 Goodwill $ 75,000
Allocation of goodwill between controlling and noncontrolling interest:Total goodwill $ 75,000Kellogg’s goodwill: $120,000 – 75%($80,000) 60,000Goodwill to noncontrolling interest $ 15,000Proportions: $60,000/$75,000 = 80% to controlling interest and 20% to the noncontrolling interest
Sales revenue (400,000) (140,000) (I-1) 60,000 (480,000)Equity in NI of Wholesome (1,750) -- (C) 1,750 --Cost of goods sold 250,000 65,000 (I-3) 3,000 2,400 (I-2)
60,000 (I-1) 255,600Operating expenses 143,000 70,000 (O) 2,000 215,000Noncontrolling interest in NI _____-- _____-- (N) 650 _______ 650
a. Consolidation Working PaperTransaction (1)Investment in Smart (2.5 x ($80,000/8)) 25,000Accumulated depreciation (5.5 x $80,000/8)) 55,000
Plant assets 80,000To eliminate the intercompany gain unconfirmed in prior years, remove the excess depreciation recorded in prior years and reduce the asset account to its net book value at date of intercompany sale.
To restate the asset and accumulated depreciation accounts to their original acquisition cost basis.
Transaction (2)Retained earnings-Smart (6 x ($50,000/10)) 30,000Accumulated depreciation (4 x ($50,000/10)) 20,000
Plant assets 50,000To eliminate the intercompany gain unconfirmed in prior years, remove the excess depreciation recorded in prior years and reduce the asset account to its net book value at date of intercompany sale.
Investment in Smart (4 x $40,000/5)) 32,000Accumulated depreciation ($40,000/5) 8,000
To eliminate the intercompany loss unconfirmed in prior years, add back the reduced depreciation recorded in prior years and increase the asset account to its book value at date of intercompany sale.
To restate the asset and accumulated depreciation accounts to their original acquisition cost basis.
b. Consolidation Working PaperRetained earnings-Smart 30,000
Gain on sale of plant assets 30,000To include in current year income the portion of the original intercompany gain of $50,000 which had not been confirmed through depreciation as of the beginning of the year. This remaining portion, which would have reduced depreciation over the next six years (including 2012), has now been fully confirmed by an external sale in 2012.
NOTE: If there is a noncontrolling interest in Smart, it shares in this $30,000 gain but not in the gain of $280,000 recorded by Pert on the external sale; $280,000 = $400,000 – [$200,000 – 4 x ($200,000/10)].
P6.4 Consolidated Income Statement—Intercompany Transactions
a.
TotalEquity in net
income
Noncontrolling interest in net
incomeSow's reported net income $ 800,000 $ 760,000 $ 40,000Plus intercompany profit in Pow's beginning inventory, now assumed confirmed 400,000 380,000 20,000Less unconfirmed intercompany profit in Sow's ending inventory (200,000) (200,000)Plus Sow's unconfirmed loss on an intercompany sale of land 100,000 95,000 5,000Less Pow's unconfirmed gain on intercompany sale of machinery at beginning of year [$250,000 - $250,000/5)] (200,000) (200,000)Plus Pow's gain on prior year intercompany sale of land, confirmed through external sale 60,000 60,000 ______Net equity method income accrual $ 960,000 $ 895,000 $ 65,000
b.Pow Company and Sow Company
Consolidated Statement of Income and Retained EarningsSales $ 32,000,000 (1)Other income 1,510,000 (2)Total revenue 33,510,000 Cost of goods sold 23,400,000 (3)Operating expenses 5,850,000 (4)Other expenses 1,000,000 (5)Total expenses 30,250,000 Consolidated net income 3,260,000Noncontrolling interest in net income 65,000Consolidated net income to parent 3,195,000 Consolidated retained earnings, January 1 15,700,000 Dividends (1,000,000) Consolidated retained earnings, December 31 $ 17,895,000
Cost of goods sold 5,000To eliminate unconfirmed intercompany profit on downstream sales from beginning inventory.
(I-4)Cost of goods sold 8,000
Inventory 8,000To eliminate unconfirmed intercompany profit on upstream sales from ending inventory.
(I-5)Gain on sale of machinery 20,000
Machinery 20,000To eliminate the gain on the intercompany sale of machinery.
(I-6)Accumulated depreciation 4,000
Depreciation expense 4,000To eliminate excess depreciation on the machinery acquired from Singular; this is the portion of the $20,000 gain confirmed to Singular in 2012.
(I-7)Machinery 30,000
Accumulated depreciation 30,000To restate the machinery and accumulated depreciation accounts to their original acquisition cost basis. (I-8)Computer service revenue 15,000
Computer service expense 15,000To eliminate intercompany revenue and expense.
(I-9)Accounts payable 2,000
Accounts receivable 2,000To eliminate intercompany receivables and payables.
Investment in Singular 1,264,000Noncontrolling interest in Singular 316,000
To eliminate the remaining beginning stockholders= equity of Singular against the investment and establish the book value of noncontrolling interest as of 1/1/12.
(1) $1,580,000 = $1,500,000 + $150,000 - .4 x $150,000 - $10,000, where $1,500,000 = $1,250,000 + $300,000 – $50,000 Goodwill = Stockholders’ equity—Singular at 1/2/11.
(R) Goodwill 50,000
Investment in Singular 50,000
To establish goodwill as of the beginning of the year.
Note: Goodwill is attributed only to the controlling interest:Acquisition cost $ 1,250,000Fair value of noncontrolling interest 300,000Total fair value 1,550,000Book value of Singular, 1/2/11 1,500,000Goodwill $ 50,000
Goodwill attributed to the controlling interest = $1,250,000 – 80% x $1,500,000 = $50,000; no goodwill is attributed to the noncontrolling interest.
Note that the above entries eliminate the Investment in Singular balance of $1,390,800, calculated as follows:
January 2, 2011 balance $1,250,000Equity in income of Singular, 2011 (2) 107,000Dividends, 2011 (48,000)December 31, 2011 balance 1,309,000Equity in income of Singular, 2012 145,800Dividends, 2012 (64,000)December 31, 2012 balance $1,390,800
(2) Equity in net income for 2011 calculation:
80% x Singular’s book income of $150,000 $ 120,000 unconfirmed upstream land profit (80%) (8,000)unconfirmed downstream profit in ending inventory (100%) (5,000)Equity in net income of Singular, 2011 $ 107,000
Dividends—Singular (.2 x .4 x $200,000) 16,000Noncontrolling interest in Singular 19,200
To record the change in the noncontrolling interest during 2012.
P6.6 Comprehensive Problem: Consolidation Working Paper and Financial Statements
(all amounts in thousands)
a. Calculation of goodwill:Acquisition cost $ 20,100Fair value of noncontrolling interest 5,900Total fair value 26,000Book value of Selene $ 10,000Previously unrecorded intangibles 4,000 14,000Goodwill $ 12,000
Consideration paid $ 20,10075% x $14,000 10,500Goodwill to parent $ 9,600 80%Goodwill to noncontrolling interest $ 2,400 20%
b. Calculation of 2012 Equity in Net Income and Noncontrolling Interest in Net Income (in thousands):
TotalEquity in NI
Noncontrolling interest in NI
Selene’s reported net income ($50,000 – 35,000 – 8,000) $ 7,000 $ 5,250 $ 1,750Amortization, developed tech ($4,000/5) (800) (600) (200)Confirmed downstream gain on equipment (excess depreciation) ($2,000/10) 200 200Upstream markup, beg. inv. ($1,800 – $1,800/1.2) 300 225 75Upstream markup, end. inv. ($2,400 – $2,400/1.2) (400) (300) (100)Downstream markup, beg. inv. ($3,000 x 20%) 600 600Downstream markup, end. inv. ($2,800 x 20%) (560) (560) _____
Sales revenue (150,000) (50,000) (I-3) 35,000 (165,000)Equity in income of Selene (4,815) (C) 4,815 --Cost of sales 100,000 35,000 (I-5) 960 35,000 (I-3)
900 (I-4) 100,060Operating expenses 42,000 8,000 (O) 800 200 (I-2) 50,600Noncontrolling interest in net income _____ _____ (N) 1,525 _______ 1,525
$ -0- $ -0- $ 78,100 $ 78,100 $ -0-
d. Consolidated Statement of Income and Retained Earnings For the Year 2012Sales $ 165,000Costs of goods sold (100,060)Gross margin 64,940Operating expenses (50,600)Consolidated net income 14,340Noncontrolling interest in income (1,525)Consolidated income to controlling interest 12,815Retained earnings, January 1 90,000Dividends (40,000)Retained earnings, December 31 $ 62,815
Consolidated Balance Sheet, December 31, 2012AssetsCurrent assets:Cash $ 3,500Receivables 15,600Inventories 99,040 Total current assets 118,140Plant and equipment, net 608,600Intangibles 800Goodwill 9,000 Total assets $ 736,540Liabilities and Stockholders’ EquityCurrent liabilities $ 6,800Long-term debt 653,525 Total liabilities 660,325Stockholders’ equity Capital stock 5,000 Retained earnings 62,815 Equity to Pierre 67,815 Noncontrolling interest 8,400 Total stockholders’ equity 76,215 Total liabilities and stockholders’ equity $ 736,540
P6.7 Calculation of Investment balance and Consolidated Retained Earnings Several Years Later
(all amounts in thousands)
a. Calculation of Consolidated Retained EarningsPacific Foods' retained earnings from its own operations $ 47,500Equity in net income, 2007 – 2010:75 % of Sahara’s total net income since acquisition (.75 x $80,000) 60,000 Less 75% of depreciation on asset revaluation [.75 x (($20,000/5) x 4)] (12,000)Less 75% of goodwill impairment loss (.75 x $3,000) (2,250)Less 75% of unconfirmed gain on upstream land sale (.75 x $15,000) (11,250)Less unconfirmed gain on downstream patent sale [$8,000 – (($8,000/10) x 3)] (5,600)Less 75% of unconfirmed profit on upstream ending inventory ($6,000 x .75) (4,500)Less unconfirmed profit on downstream ending inventory (8,500)Equity in net income, 2007 – 2010 15,900Consolidated retained earnings, December 31, 2010 $ 63,400
b.Investment in Sahara, January 2, 2007 $ 150,000Plus equity in net income, 2007 - 2010 15,900Less 75% of Sahara’s dividends, 2007 - 2010 (7,500)Investment in Sahara, December 31, 2010 $ 158,400
P6.8 Bonus Based on Adjusted Subsidiary Income
Net income before taxes $150,000 Adjustment for unconfirmed intercompany inventory profits:Increase in inventory $380,000Percent acquired from parent x .8Increase in intercompany inventory 304,000Gross margin percentage x .35Increase in unconfirmed intercompany inventory profit (106,400)Plus interest paid to parent (= $600,000 x .10) 60,000Revised income base 103,600 Less 40% for corporate costs and income taxes (41,440)Base for bonus 62,160
x .15 Bonus $ 9,324
P6.9 Consolidated Income Statement—Intercompany Transactions
a.
TotalEquity in
NINoncontrolling Interest in NI
Salem reported net income $6,200,000 $4,960,000 $1,240,000Confirmed profit in BI-downstream 650,000 650,000Unconfirmed profit in EI-upstream (500,000) (400,000) (100,000)Unconfirmed loss on asset sale-downstream 360,000 360,000Confirmed loss on asset sale-downstream= $360,000/6 (60,000) (60,000)Unconfirmed gain on land sale-upstream (190,000) (152,000) (38,000)Confirmed gain (excess amortization) on patent sale-upstream = $250,000/5 50,000 40,000 10,000Unconfirmed gain on prior year patent sale, as of beg.of year-upstream = $250,000/5 x 2 100,000 80,000 20,000
Consolidated Income StatementSales ($40,000,000 + 25,000,000 - 4,000,000) $61,000,000Other income ($6,000,000 + 2,000,000 - 190,000 + 100,000) 7,910,000Total revenue 68,910,000Cost of goods sold ($28,000,000 + 15,000,000 - 4,000,000 - 650,000 + 500,000) 38,850,000Operating expenses ($7,000,000 + 5,000,000 + 60,000 - 50,000) 12,010,000Other expenses ($1,000,000 + 800,000 - 360,000) 1,440,000Total expenses 52,300,000Consolidated net income 16,610,000Noncontrolling interest in net income 1,132,000Net income to the controlling interest $15,478,000
Check: Consolidated net income to the controlling interest must equal Portland’s reported net income, including the equity income accrual. $15,478,000 = $10,000,000 + $5,478,000.
NOTE ON THE PATENT: The patent acquired internally from Salem had a net book value of $200,000 [= $500,000 - (3/5) X 500,000] when sold by Portland for $420,000. The $220,000 (= $420,000 - 200,000) external gain reported in other income is fully confirmed and does not affect the consolidation. This year’s $50,000 (= $250,000/5) excess amortization is eliminated—increasing income—because the patent was held internally for the entire year. Moreover, the remaining $100,000 upstream intercompany gain is now fully confirmed by the external sale and is added to this year’s income. The $100,000 is the original $250,000 intercompany gain reduced by three years of excess amortization at $50,000 a year.
Cost of sales and other operating expenses 8,465,558 1,266,790 (a) 57,100 107,900 (I-1) 9,681,548Other expenses, net 381,307 26,612 407,919Noncontrolling int. in NI ________ ________ (N) 78,178 ________ 78,178
$ -0- $ -0- $ 868,946 $ 868,946 $ -0-
Eliminating entries:(a) Removes equity investees’intercompany revenues and cost of sales from the
equity method income account and assigns them to revenues and cost of sales.(C) Removes the remaining equity method income balance, 51% of investee
dividends, and adjusts the investment by the difference.(I-1) Removes intercompany revenues generated from investees.(I-2) Removes intercompany receivables and payables ($32,200 = $30,600 + $1,600).(E) Eliminates investee beginning equity against the investment (51%) and
noncontrolling interest (49%).(R) Recognizes the beginning-of-year goodwill balance. The remaining balance in
the investment ($70,685) represents 51% of the total goodwill balance of $138,598 (= $70,685/.51). The remainder is credited to noncontrolling interest.
(N) Recognizes $78,178 noncontrolling interest in investee income (= 49% x $159,547), eliminates the noncontrolling interest’s dividends and updates the noncontrolling interest for the current year.
a. Machinery & Engines is the parent company. Its records show an “Investment in Financial Products” account. We also observe that the income and stockholders’ equity of Machinery & Engines equal the consolidated amounts, a characteristic that is true of parent companies of wholly-owned subsidiaries that use the complete equity method on their own books.
b.The fact that no goodwill arises in the consolidation of Machinery & Engines with Financial Products suggests that Financial Products was formed as a subsidiary company by Machinery & Engines, rather than acquired in a business combination. Goodwill arises when the acquisition cost exceeds the fair value of the subsidiary’s identifiable net assets. When a parent company forms a subsidiary, there is no goodwill.
Another possible explanation is that the excess of acquisition cost over the acquisition-date fair value of identifiable net assets acquired is fully explained by revaluations of identifiable net assets.
A third explanation is that the acquired goodwill has been completely written off as impairment loss (or amortization prior to 2002) in previous years.
c.The goodwill on the books of Machinery & Engines suggests that Machinery & Engines acquired other companies in the past, and merged them into the parent. Because the other companies are no longer separate legal entities, Machinery & Engines reports their assets and liabilities directly on its own books, as discussed in Chapter 2 of this text.
d.Financial Products earned $400 million in revenue from Machinery & Engines; there was no intercompany revenue in the other direction.
Common stock, FP 860Profit employed in the business, FP 2,566Accumulated other comprehensive income, FP 522
Investment in Financial Products 3,948
f.The main intercompany activity involves financing of customer receivables. Over $3 billion was added to current trade receivables and subtracted from current finance receivables, and over $550 million is added to long-term trade receivables and subtracted from long-term finance receivables, suggesting that Financial Products finances a significant amount of the sales made to Machinery & Engines customers.