Question

Frazer Corporation purchased 60 percent of Minnow Corporation’s voting common stock on January 1, 20X1. On December 31, 20X5, Frazer received $258,000 from Minnow for a truck Frazer had purchased on January 1, 20X2, for $348,000. The truck is expected to have a 10-year useful life and no salvage value. Both companies depreciate trucks on a straight-line basis.

Required:

a. Prepare the worksheet consolidation entry or entries needed at December 31, 20X5, 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.)

1. Record the entry to eliminate the gain on the truck and to correct the asset's basis.

b. Prepare the worksheet consolidation entry or entries needed at December 31, 20X6, 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.)

1. Record the entry to eliminate the gain on the truck and to correct the asset's basis.

2. Record the entry to adjust Accumulated Depreciation.

Answer 1

Cost of the Truck = $348,000

Depreciation from Jan, 1 20X2 to Dec, 31 20X5 for 4 years = 348,000/10* 4 = 139,200

WDV of Truck = 208,800

Gain on Sale = 258,000 - 208,800 = 50,000

Question (a)

Entry for elimination of gain on truck:

	Debit	Credit
Gain on Sale	50,000
Truck	89,200
Accumalated Depreciation		1,39,200

Question (b)

Consolidation Worksheet	Parent	Subsidiary	Difference
Truck	3,48,000	2,58,000	90,000
Accumalated Depreciation	1,74,000	43,000	1,31,000
Adjustment to Depreciation Required			41,000

Entry for Adjusting Depreciation:

	Debit	Credit
Accumalated Depreciation	41,000
Depreciation Expense		41,000