Question

Grey Corp owns 100% of Blue Company. On January 1, 2017 Grey sold Blue a machine for $67,405. Immediately prior to the sale, the machine was recorded on Grey's books at a net book value of $21,511. Prior to the sale, Grey was depreciating the machine on a straight-line basis with 5 years of remaining life and no salvage value. Blue plans to adopt the same depreciation assumptions as Grey. What elimination adjustments with respect to this sale must be made to consolidated net income in 2018 (ignoring income tax effects)?

Answer 1

1. The fourth working note is provided just for your Information.

2.All adjusting entries are shown I part 1 for your clear understanding.

3. The main theme of consolidation is that all the companies of group should be considered as one and same company. So any profits made by those comapnies I intercompany transactions should be eliminated and any transaction on those inter company transactions should be eliminated.

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