Question

In: Accounting

Downstream Intercompany Equipment Transactions On July 1, 2015, Pearl Industries sold administrative equipment with a book...

Downstream Intercompany Equipment Transactions

On July 1, 2015, Pearl Industries sold administrative equipment with a book value of $360,000 to its subsidiary, Shiek Shoes, for $420,000. At the date of sale, the equipment had a remaining life of five years. It is being straight-line depreciated on Shiek’s books. It is now December 31, 2017, the end of the accounting year, and you are preparing the working paper to consolidate the trial balances of Pearl and Shiek. Shiek still owns the equipment.

Required

(a) Prepare the necessary consolidation eliminating entries at December 31, 2017.

Consolidation Journal
Description Debit Credit
Answer
Answer Answer
Answer
Answer Answer
To eliminate unconfirmed gain on intercompany transfer of equipment.
Answer
Answer Answer
Answer
Answer Answer
To eliminate excess depreciation expense.

(b) It is now December 31, 2018. Prepare the required eliminating entries for this intercompany equipment transaction for the December 31, 2018, consolidation working paper.

Consolidation Journal
Description Debit Credit
Answer
Answer Answer
Answer
Answer Answer
To eliminate unconfirmed gain on intercompany transfer of equipment.
Answer
Answer Answer
Answer
Answer Answer
To eliminate excess depreciation expense.

(c) Now assume that Shiek sells the equipment to an outside party for $300,000 on January 1, 2019.

What is the consolidated gain on the sale of equipment? $Answer

What is the gain reported by Shiek? $Answer

*Really I just need the answers to part c here along with explanations. Thanks!

Solutions

Expert Solution

SOLUTION OF C.. AS GIVEN ABOVE, WE WILL FIRST CALCULATE THE BOOK VALUE AS ON 31/12/2017 OF EQUIPEMENT IN THE BOOKS OF SHIEK.

2015

2016

 2017

2018
OPENING BALANCE $4,20,000 $3,36,000 $2,52,000 $1,68,000
LESS- DEPRICIATION $84,000 $84,000 $84,000 $84,000
CLOSING BALANCE $3,36,000 $2,52,000 $1,68,000 $84,000

TO CALCULATE THE CONSOLIDATED GAIN, WE WOULD FIRST FIND GAIN AS PER SHIEK'S BOOK

VALUE OF EQUIPENT IN BOOKS AS ON 31/12/2018 = $84,000

LESS- SALE VALUE = $3,00,000

(PROFIT)/ LOSS =$2,16,000.

"GAIN REPORTED BY SHIEK WILL BE $2,16,000"

AS THE BOOKS OF ACCOUNT ARE CONSOLIDATED THE GAIN ARISED IN BOOKS OF PEARL INDUSTRIES WILL HAVE TO BE ELIMINATED FROM THE GAIN ARISED BY SHEIK ON SALE OF EQUIPEMENT.

THE GAIN ARISED BY PEARL INDUSTRY IS BOOK VALUE LESS VALUE AT WHICH SOLD TO SHIEK

=$3,60,000 - $4,20,000 = $60,000.

AS THE VALUE OF EQUIPEMENT IN SHIEK LIMITED IS OVER-RATED BECAUSE $60,000 IS UNREALISED GAIN IN CONSOLIDATED GAIN. THE AMOUNT OF GAIN ARISED BY SHIEK WILL BE REDUCED BY UNREALISED GAIN BY PEARL INDUSTRIES

"THEREFORE AMOUNT OF CONSOLIDATED GAIN WILL BE  

= $2,16,000 - $60,000

= $1,56,000"

ekkarill92 answered 1 year ago
Next > < Previous

Related Solutions

Downstream Intercompany Equipment Transactions On July 1, 2015, Pearl Industries sold administrative equipment with a book...
Downstream Intercompany Equipment Transactions On July 1, 2015, Pearl Industries sold administrative equipment with a book value of $1,200,000 to its subsidiary, Shiek Shoes, for $1,400,000. At the date of sale, the equipment had a remaining life of five years. It is being straight-line depreciated on Shiek’s books. It is now December 31, 2017, the end of the accounting year, and you are preparing the working paper to consolidate the trial balances of Pearl and Shiek. Shiek still owns the...
Upstream Intercompany Building Transactions Shiek Shoes sold an administrative building to its parent, Pearl Industries, on...
Upstream Intercompany Building Transactions Shiek Shoes sold an administrative building to its parent, Pearl Industries, on January 1, 2018, for $8,000,000. At the time of sale, the building was car‑ ried on Shiek’s books at original cost of $10,000,000, with $8,500,000 of accumulated depreciation. At the date of sale, the building had a remaining life of 20 years, and straight‑line depreciation is appropriate. It is now December 31, 2020, the end of the accounting year, and you are preparing the...
Downstream Intercompany Land Transactions Saucony Company, a wholly-owned subsidiary of Puma Company, purchased a tract of...
Downstream Intercompany Land Transactions Saucony Company, a wholly-owned subsidiary of Puma Company, purchased a tract of land from Puma in 2019 for $5,000,000. Puma originally acquired the land for $2,000,000 and accounts for its investment in Saucony using the complete equity method. Required a. Assuming that Saucony still owns the land, give the working paper eliminations needed for the intercompany land sale when consolidated statements are prepared at the end of 2019 and 2020. Enter numerical answers using all zeros...
Downstream Intercompany Merchandise Transactions Sketchy Shoes is a subsidiary of Pacific Brands. Pacific routinely sells merchandise...
Downstream Intercompany Merchandise Transactions Sketchy Shoes is a subsidiary of Pacific Brands. Pacific routinely sells merchandise to Sketchy at a 25% markup on cost. Information on intercompany merchandise transactions is below (in thousands): Inventory balance on Sketchy’s books, purchased from Pacific Brands, January 1, 2017 $ 6,250 Inventory balance on Sketchy’s books, purchased from Pacific Brands, December 31, 2017 6,625 Total sales revenue recorded by Pacific Brands on merchandise sales to Sketchy in 2017 250,000 Required a. Prepare the working...
On July 15, 2018, Cottonwood Industries sold a patent and equipment to Roquemore Corporation for $840,000...
On July 15, 2018, Cottonwood Industries sold a patent and equipment to Roquemore Corporation for $840,000 and $370,000, respectively. The book value of the patent and equipment on the date of sale were $165,000 and $454,000 (cost of $649,000 less accumulated depreciation of $195,000), respectively. Prepare the journal entries to record the sales of the patent and equipment. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
On October 1, 2017, Flint Corporation sold a harvesting machine to Pearl Industries. Instead of a...
On October 1, 2017, Flint Corporation sold a harvesting machine to Pearl Industries. Instead of a cash payment, Pearl Industries gave Flint a $139,000, two-year, 12% note; 12% is a realistic rate for a note of this type. The note required interest to be paid annually on October 1, beginning October 1, 2018. Flint’s financial statements are prepared on a calendar-year basis. Required: a) Assuming that no reversing entries are used and that Pearl Industries fulfills all the terms of...
1.Equipment with a book value of $82,000 and an original cost of $161,000 was sold at...
1.Equipment with a book value of $82,000 and an original cost of $161,000 was sold at a loss of $33,000. Paid $100,000 cash for a new truck. Sold land costing $310,000 for $405,000 cash, yielding a gain of $95,000. Long-term investments in stock were sold for $92,100 cash, yielding a gain of $14,000. Use the above information to determine cash flows from investing activities. (Amounts to be deducted should be indicated with a minus sign.) 2. Net income was $467,000....
On October 1, 2020, Pearl Equipment Company sold a pecan-harvesting machine to Valco Brothers Farm, Inc....
On October 1, 2020, Pearl Equipment Company sold a pecan-harvesting machine to Valco Brothers Farm, Inc. In lieu of a cash payment Valco Brothers Farm gave Arden a 2-year, $171,200, 10% note (a realistic rate of interest for a note of this type). The note required interest to be paid annually on October 1. Pearl’s financial statements are prepared on a calendar-year basis. Assuming Valco Brothers Farm fulfills all the terms of the note, prepare the necessary journal entries for...
During 2015, Rainbow Umbrella Corp. had sales of $800,000. Cost of goods sold, administrative and selling...
During 2015, Rainbow Umbrella Corp. had sales of $800,000. Cost of goods sold, administrative and selling expenses, and depreciation expenses were $580,000, $90,000, and $150,000, respectively. In addition, the company had an interest expense of $89,000 and a tax rate of 35 percent. (Ignore any tax loss carryback or carryforward provisions.)     Suppose the company paid out $53,000 in cash dividends. If spending on net fixed assets and net working capital was zero, and if no new stock was issued...
Impairment Loss On July 1, 2015, Karen Company purchased equipment for $325,000; the estimated useful life...
Impairment Loss On July 1, 2015, Karen Company purchased equipment for $325,000; the estimated useful life was 10 years and the expected salvage value was $40,000. Straight-line depreciation is used. On July 1, 2019, economic factors cause the market value of the equipment to decrease to $90,000. On this date, Karen evaluates if the equipment is impaired and estimates future cash flows relating to the use and disposal of the equipment to be $195,000. a. Is the equipment impaired at...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT