Question

In 2000 the Kirk Company purchased 100% of the Spock Company at book value.

Kirk uses the initial value method to account for its investment in Spock and Spock does not pay any dividends.

On 1/1/2010 Spock Company purchased a spaceship for $4,000,000. Spock believes this spaceship will last 20 years have no salvage value

Spock uses straight line depreciation

On 1/1/2015 Spock sold the spaceship to Kirk for a $3,300,000 12% note.   Kirk believes the spaceship will last 15 more years and and have no salvage value

This is a 1 year note with payment due on 1/1/2016

Kirk also uses straight line depreciation

On 1/1/2021 Kirk sold the spaceship to Klingon Company for $2,400,000 cash

REQUIRED:

A) MAKE THE JOURNAL ENTRY SPOCK MAKES WHEN IT BUYS THE SPACESHIP FOR CASH

B) DETERMINE SPOCK'S ANNUAL DEPRECIATION EXPENSE

C) MAKE THE JOURNAL ENTRY SPOCK MAKES WHEN IT SELLS THE SPACESHIP TO KIRK ON CREDIT

D) MAKE THE JOURNAL ENTRY KIRK MAKES WHEN IT BUYS THE SPACESHIP FROM SPOCK

E) DETERMINE KIRK'S ANNUAL DEPRECIATION EXPENSE

F) MAKE THE NECESSARY WORKSHEET ENTRIES FOR 2015. HINT; DON'T FORGET ABOUT THE NOTE

G) MAKE THE NECESSARY WORKSHEET ENTRIES FOR 2016. HINT; THE NOTE HAS BEEN PAID OFF

H) MAKE THE JOURNAL ENTRY KIRK MAKES WHEN IT SELLS THE SPACESHIP TO KLINGON

I) MAKE THE NECESSARY WORKSHEET ENTRY FOR 2021 …YEAR WHEN KIRK SOLD SPACESHIP TO KLINGON

J) IN 2021 KIRK REPORTED UNCONSOLDIATED INCOME OF $3,000,000 AND SPOCK REPORTED INCOME OF $100,000 WHAT WAS CONSOLIDATED INCOME?

Answer 1

Hope it helps,

Thank you.