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What effect does the realized intercompany profit

    Assignment Instructions

    Assignment ID: FG133136066

    Question – Picture Company (Picture) owns 90% of Snapshot Inc. (Snapshot). On January 1, 2022, the investment in Snapshot account had a balance of $350,000 and Snapshot’s common shares and retained earnings on that date were valued at $200,000 and $100,889, respectively. Moreover, the assets to which the remaining acquisition differential relates had a remaining life of 10 years on that date.

    Picture uses the equity method to account for its investment in Snapshot.

    On January 1, 2022, Picture sold a depreciable asset to Snapshot for cash of $50,000 resulting in a before-tax gain of $10,000. On January 1, 2023, Snapshot sold a depreciable asset to Picture for cash of $80,000 resulting in a before-tax gain of $20,000. Both assets had remaining useful lives of 10 years on their respective sale dates. Note: neither transaction was a capital gain for tax purposes.

    The tax rate for both companies is 30%.

    Snapshot’s net income and dividends for 2022 and 2023 are shown below.

     

    2022

    2023

    Net Income

    $80,000

    $120,000

    Dividends

    $20,000

    $30,000

    What is the net after-tax reduction to consolidated net income in 2022?

    How much intercompany (after-tax) profit was realized during 2023 on Picture’s 2022 sale of the depreciable asset to Snapshot?

    What effect does the realized intercompany profit of Picture’s 2022 sale of the depreciable asset to Snapshot have on the 2023 consolidated income statement?

    Which of the following is the correct journal entry to record the realized profit in 2023 from the Snapshot sale of the depreciable asset to Picture?

    What is the amount of the change to the acquisition differential for 2023?

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