Question
In: Accounting
On January 1, Year 1, Josh Corp. sold equipment to Mayfair Inc. (its 100% sub) for...
On January 1, Year 1, Josh Corp. sold equipment to Mayfair Inc. (its 100% sub) for $120,000 in cash. The equipment originally cost $160,000 but had a book value of $96,000 when transferred. On that date, the equipment had a five-year remaining life
1. Prepare the consolidation entries relating to the equipment sale for 12/31, Year 1.
2. Prepare the consolidation entries relating to the equipment sale for 12/31, Year 2.
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Expert Solution
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| Josh Corp. | Amount $ |
| Sale value of equipment | 120,000.00 |
| Less: Carrying value of equipment sold | 96,000.00 |
| Gain on sale | 24,000.00 |
| Original cost of equipment | 160,000.00 |
| Less: Carrying value of equipment sold | 96,000.00 |
| Accumulated depreciation- equipment | 64,000.00 |
| Elimination entry | |||||
| Year | Nature | Account | Debit $ | Credit $ | Note |
| Year 1 | To eliminate gain on sale | Gain on sale | 24,000.00 | ||
| Equipment | 24,000.00 | ||||
| To reinstate Accumulated depreciation | Equipment | 64,000.00 | |||
| Accumulated depreciation | 64,000.00 | ||||
| Year 2 | To eliminate gain on sale | Retained Earnings | 24,000.00 | ||
| Equipment | 24,000.00 | ||||
| To adjust depreciation expense | Accumulated depreciation | 24,000.00 | This is $ 120,000/ 5 years. | ||
| Depreciation expense | 19,200.00 | This is $ 24,000 less $ 4,800. | |||
| Retained Earnings | 4,800.00 | This is $ 24,000/ 5 years. |
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