Discuss effect of intercompany sale of building Khap Corporation acquired an 80 percent interest in Khun Corporation in 2014. On January 1, 2016, Khap sold a building

Discuss effect of intercompany sale of building Khap Corporation acquired an 80 percent interest in Khun Corporation in 2014. On January 1, 2016, Khap sold a building with a five-year remaining useful life to Khun for $150,000 cash. The building’s book value was $100,000. Khun still owns the building at December 31, 2016.

REQUIRED

1. How and in what amount will the sale of the building affect Khap’s income from Khun and net income for 2016, and the balance of Khap’s Investment in Khun account on December 31, 2016?

2. How will the consolidated financial statement of Khap Corporation and Subsidiary for 2016 be affected by the intercompany sale of the building?

3. How and in what amount will the sale of the building affect Khap’s income from Khun and net income for 2017 and the balance of Khap’s Investment in Khun account at December 31, 2017 if Khun still owns the building in 2017?

4. If Khun sold the building back to Khap at the same price and date, how and in what amount will the sale of the building affect Khap’s income from Khun and net income for 2016 and the balance of Khap’s Investment in Khun account at December 31, 2016?


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