Question

In: Accounting

Pearson Company owns 90% of the outstanding common stock of Spring Company. On January 1, 2014,...

Pearson Company owns 90% of the outstanding common stock of Spring Company. On January 1, 2014, Spring Company sold equipment to Pearson Company for $206,850. Spring Company had purchased the equipment for $316,700 on January 1, 2009, and had depreciated it using a 10% straight-line rate. The management of Pearson Company estimated that the equipment had a remaining useful life of five years on January 1, 2014. In 2015, Pearson Company reported $163,200 and Spring Company reported $107,300 in net income from their independent operations (including sales to affiliates).

(a)

Prepare in general journal form the workpaper entries relating to the intercompany sale of equipment that are necessary in the December 31, 2014, and December 31, 2015, consolidated financial statements workpapers. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when the amount is entered. Do not indent manually.)

Solutions

Expert Solution

Cost of equipment $316,700
Accumulated Depreciation ($316,700 × .10 × 5 years) $158,350
Book value 1/1 2014 $158,350
Proceeds from sale $206,850
Gain on sale $48,500

Part A.

2014
(1)
Equipment ($316,700 - $206,850) $109,850
Gain on Sale of Equipment $48,500
Accumulated Depreciation($316,700)(5/10) $158,350
(2) Accumulated Depreciation – Equipment $9,700
Depreciation Expense ($48,500/5) $9,700
2012
(1) Equipment $109,850
Beginning Retained Earnings – Pearson (.9 × $48,500) $43,650
Noncontrolling Interest (.1 × $48,500) $4,850
  Accumulated Depreciation – Equipment $158,350
(2) Accumulated Depreciation – Equipment $19,400
  Depreciation Expense $9,700
  Beginning Retained Earnings – Pearson (.9 × $9,700) $8,730
  Noncontrolling Interest (.10 × $9,700) $970

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