Question

P Company owns 70% of the outstanding stock of S Company. On January 1, 2011, S Company sold land to P Company for $280,000. S had originally purchased the land on March 30, 2007, for $330,000.

P Company plans to construct a building on the land bought from S in which it will house new production machinery. The estimated useful life of the building and the new machinery is 20 years.

To solve: Prepare all journal entries for P and S (from initial purchase of land from 3^rd parties to sale between the related parties). In addition, prepare the w/p entry to eliminate the intercompany sale of land

Answer 1

Answer:

Journal Entries in the books of S Company
		Amount in $
Date	Particulars	Debit	Credit
30/03/2007	Land Account                 Dr	330,000
	To Bank Account		330,000
	(Being land purchased)
01/01/2011	P Company Account     Dr	280,000
	Loss on sale of land      Dr	50,000
	To Land Account		330,000
	(Being Land is sold to P Company at a loss of $ 50,000)
Journal Entries in the books of P Company
			Amount in $
Date	Particulars	Debit	Credit
01/01/2011	Land Account                 Dr	280,000
	To S Company Account		280,000
	(Being land purchased)
w/p entry to eliminate the intercompany sale of land
			Amount in $
Date	Particulars	Debit	Credit
	Land Account              Dr	50,000
	To loss on sale of land		50,000
	(Being adjustment entry passed to eliminate loss on intercomapny sale of land)