Question

Grey Corp owns 69% of Blue Company. On January 1, 2017 Grey sold Blue a machine for $93,000. Immediately prior to the sale, the machine was recorded on Grey's books at a net book value of $23,000. Prior to the sale, Grey was depreciating the machine on a straight-line basis with 4 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 2017 (ignoring income tax effects)? (Note: use a minus sign in your answer to denote a decrease, no sign needed for an increase.)

Answer 1

Answer:

Grey's Book

Date	General Gournal	Debit	Credit
2017
Jan-01	Cash	$         93,000
	Machinery		$         23,000
	Gain on sale		$         70,000

.

Blue's Book

Date	General Gournal	Debit	Credit
2017
Jan-01	Machinery	$         93,000
	Cash		$         93,000
Dec-31	Depreciation expense	$         23,250
	Accumulated Depreciation (93,000/4)		$         23,250

.

Elimination Entry:

Date	General Gournal	Debit	Credit
2017
Dec-31	Gain On Sale (70000*69%)	$         48,300
	Non-controlling interest (70,000*31%)	$         21,700
	Machinery		$         70,000
	Accumulated Depreciation (70000/5)	$         14,000
	depreciation Expense (14000*69%)		$           9,660
	Non-controlling interest (14000*31%)		$           4,340

Analysis:

Analysis						Non cotrolling
	Conso	Parent Grey	Subsidiary Blue	Elimination amount	72%	28%
Machinery	23000		93000	-70000	-50400	-19600
Accum. Depreciation	4600		18600	-14000	-10080	-3920
Carrying Value	18400		74400	-56000
Depreciation, 2018	4600		18600	-14000	-10080	-3920
Gain on sale		70000		-70000	-50400	-19600