Upstream Sale of Equipment in Prior PeriodE6-11 Upstream Sale of Equipment in Prior PeriodBaywatch Industries purchased 80 percent ownership of
Tubberware Corporation on January 1, 20X0, at underlying book value. On January
1, 20X6, Baywatch paid Tubberware $270,000 to acquire equipmentthat Tubberware had purchased on January 1, 20X3, for
$300,000. The equipment is expected to have no scrap value and is depreciated
over a 15-year useful life.Baywatch reported operating earnings of $100,000 for 20X8
and paid dividends of $40,000. Tubberware reported net income of $40,000 and
paid dividends of $20,000 in 20X8.Requireda. Compute the amount reported as consolidated net income
for 20X8.b. By what amount would consolidated net income change if
the equipment sale had been a downstream sale rather than an upstream sale?
c. Give the eliminating entry or entries required to
eliminate the effects of the intercompany sale of equipment in preparing a full
set of consolidated financial statements at December 31, 20X8.
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