[gustav.tollemar]

Power Corporation owns 75 percent of Swift Company’s stock. Swift provides health care services to its employees and those of Power. During 20X2, Power recorded $45,000 as health care expense for medical care given to its employees by Swift. Swift’s costs incurred in providing the services to Power were $32,000.

By what amount will consolidated net income change when the intercompany services are eliminated in preparing Power’s consolidated statements for 20X2?

I was thinking you would just reduce NI on the consolidated statements by the amount of the intercompany loss (13000 x .75). This isnt the right answer and I cant figure out why.

[Anonymous]

Not sure if I am reading it right but any internal service fees, profit , dividend is eliminated.. If swift is providing $32,000 internal service to parent company .. It should be eliminated….

[MrsBing]

Not sure if this is right, but wouldn't the entire 13K be eliminated?

Becker, Wiley Test Bank, and Ninja 10 Point Combo!

FAR: 89
REG: 87
AUD: 92
BEC: 75
Ethics: 90

Licensed Arizona CPA

[gustav.tollemar]

Entirely correct. I was under the impression that because there was an NCI involved I would still have to reduce NI by some amount.

Thanks guys.

[Author]

Replies