Question
In: Accounting
Downstream Intercompany Land Transactions Saucony Company, a wholly-owned subsidiary of Puma Company, purchased a tract of...
Downstream Intercompany Land Transactions
Saucony Company, a wholly-owned subsidiary of Puma Company, purchased a tract of land from Puma in 2019 for $5,000,000. Puma originally acquired the land for $2,000,000 and accounts for its investment in Saucony using the complete equity method.
Required
a. Assuming that Saucony still owns the land, give the working paper eliminations needed for the intercompany land sale when consolidated statements are prepared at the end of 2019 and 2020.
Enter numerical answers using all zeros (do not abbreviate to millions or thousands).
| Date | Description | Debit | Credit | |
|---|---|---|---|---|
| 2019 | AnswerGain on sale of landInvestment in SauconyLandLoss on sale of landRetained earnings, beg. - Saucony | Answer | Answer | |
|
AnswerGain on sale of landInvestment in SauconyLandLoss on sale of landRetained earnings, beg. - Saucony |
Answer | Answer | ||
| 2020 | AnswerGain on sale of landInvestment in SauconyLandLoss on sale of landRetained earnings, beg. - Saucony | Answer | Answer | |
|
AnswerGain on sale of landInvestment in SauconyLandLoss on sale of landRetained earnings, beg. - Saucony |
Answer | Answer | ||
b. If Saucony sells the land to a third party for $4,500,000 in 2021, prepare the eliminations needed for the intercompany land sale when consolidated statements are prepared at the end of 2021.
| Date | Description | Debit | Credit | |
|---|---|---|---|---|
| 2021 | AnswerGain on sale of landInvestment in SauconyLandLoss on sale of landRetained earnings, beg. - Saucony | Answer | Answer | |
|
AnswerGain on sale of landInvestment in SauconyLandLoss on sale of landRetained earnings, beg. - Saucony |
Answer | Answer |
Solutions
Expert Solution
| a | |||
| Year | Particulars | Debit | Credit |
| 2016 | Gain on sale of Land | 30,00,000 | |
| Land | 30,00,000 | ||
| (To eliminate the unconfirmed gain on the intercompany sale of land and reduce the land account to original acquisition cost.) | |||
| 2017 | Investment in Saucony | 30,00,000 | |
| Land | 30,00,000 | ||
| To add the prior year unconfirmed gain to the investment account to maintain equivalence with the retained earnings of Saucony and reduce the land account to original acquisition cost | |||
| b | |||
| Year | Particulars | Debit | Credit |
| 2018 | Investment in Saucony | 30,00,000 | |
| Gain on Sale of Land | 30,00,000 | ||
| To include the prior year intercompany gain, now confirmed, in current year income and restate the investment account by offsetting the previous reduction while the gain was unconfirmed. | |||
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ekkarill92 answered 2 years agoRelated Solutions
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