Pam Corporation holds 70 percent ownership of Spray Enterprises. On December 31, 20X6, Spray paid Pam...

Pam Corporation holds 70 percent ownership of Spray Enterprises. On December 31, 20X6, Spray paid Pam $32,500 for a truck that Pam had purchased for $37,500 on January 1, 20X2. The truck was considered to have a 20-year life from January 1, 20X2, and no residual value. Both companies depreciate equipment using the straight-line method. Required:

a. Prepare the worksheet consolidation entry or entries needed on December 31, 20X6, to remove the effects of the intercompany sale. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

b. Prepare the worksheet consolidation entry or entries needed on December 31, 20X7, to remove the effects of the intercompany sale.

Solutions

Expert Solution

Solution:

Book Value of Asset at the time of Sale = Cost of Asset $37,500 – Accumulated Depreciation 37,500 * 5 / 20

= $37,500 - $9,375

= $28,125

Sale Value of Asset = $32,500

Gain on Sale of Asset = Sale Value $32,500 - Book Value 28,125 = $4,375

Understanding of transactions and events

Spray paid $32,500 to Pam and will record equipment at their books at this value and record depreciation expense on remaining life of equipment for $2,166.67 (32,500 / 15).

Annual Depreciation Expense which Pam was recording on this equipment = $37,500 / 20 = $1,875.

It means Spray will record excess depreciation expense of $292.67 (2167 – 1875) for remaining life of equipment.

For consolidation purpose, we need to remove gain on sale of asset $4,375 on Dec 31, 20X6.

And every year till the remaining life of equipment we need to eliminate the excess depreciation expense for consolidation purpose.

Hence, the journal entry would be as below:

Part a - Consolidation entry needed on December 31, 20X6, to remove the effects of the intercompany sale.

Date	General Journal	Debit	Credit
Dec.31, 20X6	Gain on Sale of Equipment	$4,375
	Equipment ($37,500 - $32,500)	$5,000
	Accumulated Depreciation		$9,375
	(To remove unrealied gain and adjust equipment account to its original historical cost)

Part b – Prepare the worksheet consolidation entry or entries needed on December 31, 20X7, to remove the effects of the intercompany sale.

Date	General Journal	Debit	Credit
Dec.31, 20X7	Accumulated Depreciation	$292.67
	Depreciation Expense		$292.67
	(To eliminate overstatement of depreciation expense)

Hope the above calculations, working and explanations are clear to you and help you to understand the concept of question.... please rate my answer...in case any doubt, post a comment and I will try to resolve the doubt ASAP…thank you

ekkarill92 answered 1 year ago

Next > < Previous

Related Solutions

Pam Corporation holds 70 percent ownership of Spray Enterprises. On December 31, 20X6, Spray paid Pam...

Pam Corporation holds 70 percent ownership of Spray Enterprises. On December 31, 20X6, Spray paid Pam $29,500 for a truck that Pam had purchased for $34,500 on January 1, 20X2. The truck was considered to have a 15-year life from January 1, 20X2, and no residual value. Both companies depreciate equipment using the straight-line method. Required: a. Prepare the worksheet consolidation entry or entries needed on December 31, 20X6, to remove the effects of the intercompany sale. (If no entry...

Pam Corporation holds 70 percent ownership of Northern Enterprises. On December 31, 20X6, Northern paid Pam...

Pam Corporation holds 70 percent ownership of Northern Enterprises. On December 31, 20X6, Northern paid Pam $28,000 for a truck that Pam had purchased for $33,000 on January 1, 20X2. The truck was considered to have a 20-year life from January 1, 20X2, and no residual value. Both companies depreciate equipment using the straight-line method. Required: a. Prepare the worksheet consolidation entry or entries needed on December 31, 20X6, to remove the effects of the intercompany sale. (If no entry...

On December 31, 2016, Pam Corporation purchased 80 percent of the stock of Sun Company at...

On December 31, 2016, Pam Corporation purchased 80 percent of the stock of Sun Company at book value. The data reported on their separate balance sheets immediately after the acquisition follow. At December 31, 2016, Pam Corporation owes Sun $20,000 on accounts payable. (All amounts are in thousands.) Pam Sun Assets Cash $128 $72 Accounts Receivable 180 136 inventories 572 224 investments in Sun 800 0 Equipment- Net 1520 700 3200 1132 Liabilites and Stockholders' Equity accounts payable 160 132...

Phone Corporation acquired 70 percent of Smart Corporation’s common stock on December 31, 20X4, for $98,700....

Phone Corporation acquired 70 percent of Smart Corporation’s common stock on December 31, 20X4, for $98,700. At that date, the fair value of the noncontrolling interest was $42,300. Data from the balance sheets of the two companies included the following amounts as of the date of acquisition: Phone Smart Item Corporation Corporation Cash $ 67,300 $ 40,000 Accounts Receivable 102,000 62,000 Inventory 142,000 93,000 Land 67,000 43,000 Buildings & Equipment 419,000 253,000 Less: Accumulated Depreciation (162,000 ) (78,000 ) Investment...

Phone Corporation acquired 70 percent of Smart Corporation’s common stock on December 31, 20X4, for $102,200....

Phone Corporation acquired 70 percent of Smart Corporation’s common stock on December 31, 20X4, for $102,200. At that date, the fair value of the noncontrolling interest was $43,800. Data from the balance sheets of the two companies included the following amounts as of the date of acquisition: Phone Smart Item Corporation Corporation Cash $ 50,300 $ 21,000 Accounts Receivable 90,000 44,000 Inventory 130,000 75,000 Land 60,000 30,000 Buildings & Equipment 410,000 250,000 Less: Accumulated Depreciation (150,000 ) (80,000 ) Investment...

Phone Corporation acquired 70 percent of Smart Corporation’s common stock on December 31, 20X4, for $97,300....

Phone Corporation acquired 70 percent of Smart Corporation’s common stock on December 31, 20X4, for $97,300. At that date, the fair value of the noncontrolling interest was $41,700. Data from the balance sheets of the two companies included the following amounts as of the date of acquisition: Phone Smart Item Corporation Corporation Cash $ 60,300 $ 31,000 Accounts Receivable 99,000 46,000 Inventory 142,000 91,000 Land 71,000 41,000 Buildings & Equipment 427,000 261,000 Less: Accumulated Depreciation (151,000 ) (75,000 ) Investment...

Phone Corporation acquired 70 percent of Smart Corporation’s common stock on December 31, 20X4, for $95,900....

Phone Corporation acquired 70 percent of Smart Corporation’s common stock on December 31, 20X4, for $95,900. At that date, the fair value of the noncontrolling interest was $41,100. Data from the balance sheets of the two companies included the following amounts as of the date of acquisition: Phone Smart Item Corporation Corporation Cash $ 68,300 $ 37,000 Accounts Receivable 96,000 57,000 Inventory 142,000 87,000 Land 77,000 31,000 Buildings & Equipment 421,000 257,000 Less: Accumulated Depreciation (153,000 ) (76,000 ) Investment...

Phone Corporation acquired 70 percent of Smart Corporation’s common stock on December 31, 20X4, for $98,000....

Phone Corporation acquired 70 percent of Smart Corporation’s common stock on December 31, 20X4, for $98,000. At that date, the fair value of the noncontrolling interest was $42,000. Data from the balance sheets of the two companies included the following amounts as of the date of acquisition: Phone Smart Item Corporation Corporation Cash $ 62,300 $ 21,000 Accounts Receivable 95,000 51,000 Inventory 136,000 90,000 Land 71,000 39,000 Buildings & Equipment 425,000 254,000 Less: Accumulated Depreciation (162,000 ) (79,000 ) Investment...

On December 31, 20X6, Greenly Corporation and Lindy Company entered into a business combination in which...

On December 31, 20X6, Greenly Corporation and Lindy Company entered into a business combination in which Greenly acquired all of Lindy’s common stock for $957,000. At the date of combination, Lindy had common stock outstanding with a par value of $117,000, additional paid in capital of $412,000, and retained earnings of $175,000. The fair values and book values of all Lindy’s assets and liabilities were equal at the date of combination, except for the following: Book Value Fair Value Inventory...

The December 31, 20X8, balance sheets for Pint Corporation and its 70 percent-owned subsidiary Saloon Company...

The December 31, 20X8, balance sheets for Pint Corporation and its 70 percent-owned subsidiary Saloon Company contained the following summarized amounts: PINT CORPORATION AND SALOON COMPANY Balance Sheets December 31, 20X8 Pint Corporation Saloon Company Assets Cash & Receivables $ 105,000 $ 48,000 Inventory 156,000 105,000 Buildings & Equipment (net) 313,000 292,000 Investment in Saloon Company 217,000 Total Assets $ 791,000 $ 445,000 Liabilities & Equity Accounts Payable $ 92,000 $ 79,000 Common Stock 184,000 131,000 Retained Earnings 515,000 235,000...

Subjects