Pomeroy Corporation owns an 80% interest in Sherer Company and a 90% interest in Tampa Company....

Pomeroy Corporation owns an 80% interest in Sherer Company and a 90% interest in Tampa Company. OnJanuary 2, 2014, Tampa Company sold equipment with a book value of $600,000 to Sherer Company for$780,000. This equipment has a remaining useful life ofthree years. Sherer Company reported $100,000 andTampa Company reported $150,000 in net income (including sales to affiliates) in 2014.Required:Prepare the 2014 and 2015 consolidated statements workpaper entries to eliminate the effects of this sale o fequipment.

Expert Solution

Answer :-

Date	Account Titles and Explanation	Debit	Credit
2014	Gain on sale of Equipment A/c Dr.	180,000
	To Equipment A/c		1,80,000
	(To eliminate equipment)

	Accumulated Depreciation A/c Dr.	$60,000
	To Depreciation Expense		$60,000
	(To eliminate depreciation on equipment)

2015	Retained Earning Beginning - Pomeroy A/c Dr. (180,000 × 90%)	162,000
	Non controlling Interest A/c Dr. (180,000× 10%)	18,000
	To Equipment A/c		180,000
	(To eliminate equipment)

	Accumulated Depreciation A/c Dr.	120,000
	To Depreciation Expense A/c		60,000
	To Retained Earning Beginning - Pomeroy A/c (60,000 × 90%)		54000
	To Non controlling Interest A/c (60,000 × 10%)		6000
	(To eliminate depreciation on equipment)

Working Notes -

Equipment Cost - $600,000

Proceed from sale - $780,000

(Gain) /Loss on sale of equipment = Equipment cost - Proceed from sale =$600,000 - $780,000

Gain on sale of Equipment = 180,000

This equipment has a remaining useful life of three years

Depreciation on Cost =$600,000/3 Years = $200,000

Depreciation on sale amount = $780,000/ 3 = $260,000

Excess Depreciation =Difference of cost and sale amount of Depreciation

Excess Depreciation =$ 200,000 - $260,000

Excess Depreciation = $60,000

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