Question

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 $43,000 as health care expense for medical care given to its employees by Swift. Swift’s costs incurred in providing the services to Power were $32,500. (Leave no cells blank, enter "0" wherever required.)

  

Required:

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

     

b.	What would be the impact of eliminating the intercompany services on consolidated net income if Power owned 100 percent of Swift’s stock rather than 75 percent?

      

c.	If in its consolidated income statement for 20X2 Power had reported total health care costs of $71,000, what was the cost to Swift of providing health care services to its own employees?

Answer 1

a.

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

There will be no change in consolidated net income

b.

What would be the impact of eliminating the intercompany services on consolidated net income if Power owned 100 percent of Swift’s stock rather than 75 percent?

c.

100% of intercompany services on net income should be eliminated. change in percentage of ownership will not have any impact on consolidated net income or amount eliminated.

If in its consolidated income statement for 20X2 Power had reported total health care costs of $71,000, what was the cost to Swift of providing health care services to its own employees?

$71000-$32500 = $38500