Question

In: Accounting

Pen Corporation owned equipment with an original cost of $90,000. On January 1, 2019, Pen sold...

  1. Pen Corporation owned equipment with an original cost of $90,000. On January 1, 2019, Pen sold the equipment to Sen Company (a 60%-owned subsidiary) for a price of $82,400. At the time of the intercompany sale, the equipment had been depreciated for $18,400. The equipment has a remaining useful life of 8 years and is straight-line depreciated. On January 1, 2021, Sen sold the equipment to an outside company for $63,200.

(i) Prepare the working paper eliminating entry regarding the equipment for the year ended December 31, 2019.

(ii) Prepare the working paper eliminating entry I-1 regarding the equipment for the year ended December 31, 2020.

(iii) Prepare the working paper eliminating entry regarding the equipment for the year ended December 31, 2021.

Solutions

Expert Solution

Pen Corpoartion owns the asset
Value of asset after depreciation 90000-18400 71600
Sold it to Sen Co for 82400
Profit on disposal 82400-71600 10800
In the books of Pen Corp
Dr Sen Co ( Sundry Drs or Investment) 82400
Cr Equipment a/c 71600
Cr Profit on disposal of asset 10800
Cash /Share of Sen Co. 82400
Sen Co 82400
During the year the equipment was used by the company
Purchase price of the equipment will be $ 82400
It is said that the depreciation is on straight line basis for 8 yrs and ther is no salvage value specified hence depreciation = 82400/8 = 10300
At the end of the year the value of equipment will be 72100 ( 82400-10300)
The entry will be
In the books of Sen Co
1.1.2019
1. Dr Equipment A/c Dr 82400
Cr Pen Corporation ( Creditors) 82400
2. Dr Pen Corporation A/c Dr 82400
   Cr Share capital / Cash 82400
Dec 31 2019
1. Dr Depreciation Expense A/c 10300
   Cr Equipment Account  A/c 10300
2. Dr P and L A/c 10300
    Cr Depreciation A/c 10300
Date dec 31 2020 ( Still the equipment remains with sen co.)
Now the value of equipment is 72100-10300 61800
Dr Depreciation Expense A/c    10300
Cr Equipment Account/ Accumulated Depreciation  A/c 10300
and
Dr P and L A/c 10300 10300
Cr Depreciation A/c 10300
on 1.1.2021 sen sold the equipment to an external party @ 63200
Currently the value of the equoment is Rs 61800 where as sen co sold it or 63200
Profit on Dsposal of equipment 1400
Dr Sundry Creditor ( 3rd party) 63200
Cr Equipment Account 61800
Cr Profit on disposal Of Equipment 1400

ekkarill92 answered 1 year ago
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