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Playoff Corporation holds 90 percent ownership of Series Company. On July 1, 20X3, Playoff sold equipment...

Playoff Corporation holds 90 percent ownership of Series Company. On July 1, 20X3, Playoff sold equipment that it had purchased for $57,000 on January 1, 20X1, to Series for $53,000. The equipment’s original six-year estimated total economic life remains unchanged. Both companies use straight-line depreciation. The equipment’s residual value is considered negligible.

Required:
a. Prepare the consolidation entry or entries in the consolidation worksheet prepared as of December 31, 20X3, 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. Round your answers to nearest dollar.)



b. Prepare the consolidation entry or entries in the consolidation worksheet prepared as of December 31, 20X4, 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. Round your answers to nearest dollar.)

Solutions

Expert Solution

Cost of equipment            57,000
Less: Accumulated Depreciation (Jan 1, 20X1 to July 1, 20X3 = 2.5 years) (57000*2.5/6)            23,750
Book value            33,250
Sale of equipment            53,000
Less: Book value            33,250
Gain on sale of equipment            19,750
Number of remainings years                 3.50

Part 1

Date General journal Debit Credit
20X3 Equipment (57000-53000)                 4,000
Gain on sale of equipment               19,750
Accumulated depreciation              23,750
(Entry relating to Equipment account)

Accumulated depreciation [July 1 to Dec 31 = 6 months]

[6 - 2.5 year completed = 3.5] ((19750/3.50)*6/12)

                 2,821
Depreciation Expense                 2,821
(Entry relating to Depreciation Expense account)

Part 2

Date General journal Debit Credit
20X4 Equipment (57000-53000)                 4,000
Retained earnings, beginning - parent company (19750*90%)               17,775
Noncontrolling interest (19750*10%)                 1,975
Accumulated depreciation              23,750
(Entry relating to Equipment account)

Accumulated depreciation [July 1, 20X3 to December 31, 20X4 = 1.5 years]

((19750/3.50)*1.5)

                 8,464
Depreciation Expense (19750/3.5)                 5,643
Retained earnings, beginning - parent company (2821*90%)                 2,539
Noncontrolling interest (2821*10%)                    282
(Entry relating to Depreciation Expense account)

ekkarill92 answered 1 year ago
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