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Pam Corporation holds 70 percent ownership of Spray Enterprises. On December 31, 20X6, Spray paid Pam...

Pam Corporation holds 70 percent ownership of Spray Enterprises. On December 31, 20X6, Spray paid Pam $29,500 for a truck that Pam had purchased for $34,500 on January 1, 20X2. The truck was considered to have a 15-year life from January 1, 20X2, and no residual value. Both companies depreciate equipment using the straight-line method.

Required:
a. Prepare the worksheet consolidation entry or entries needed on 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.)



b. Prepare the worksheet consolidation entry or entries needed on December 31, 20X7, to remove the effects of the intercompany sale. (Do not round intermediate calculations. If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Pitcher Corporation purchased 60 percent of Softball Corporation’s voting common stock on January 1, 20X1. On December 31, 20X5, Pitcher received $243,000 from Softball for a truck Pitcher had purchased on January 1, 20X2, for $303,000. 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.)



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.)

Solutions

Expert Solution

a) Worksheet consolidation entry needed on December 31,2016 to remove the effects of the intercompany sale-

a.Purchase price of Truck by Pam on 01.01.2012   = $34,500

b. Life of Truck                                                                  = 15 years

c. Depreciation to be charged each year                (a/b)      = 34500/15

                                                                                                = $ 2,300

d. Accumulated depreciation upto 31.12.2016( 5 years) = 2300*5

                                                                                                = 11,500

e. Value of Truck in books of Pam on 31.12.2016                (c-d)= 34500- 11500

                                                                                                = $ 23,000

f. Purchase value of Truck by Spray Enterprises = $ 29,500

g. Gain on sale   (f-e)                                                       = 29500-23000

                                                                                                = $6,500

Since, Spray Enterprises should record the value of truck as if the sale did not occur, the amount to be recorded in the books of Spray enterprises is $ 34,500(i.e the purchase price of Pam)

h.Extra amount to be debited to the value of truck(a-f)= 34500-29500

                                                                                                =$ 5000

Worksheet consolidation entry-

Gain on Sale A/c Dr.                       6,500

Truck A/c Dr.                                      5,000

                To Accumulated Depreciation A/c                           11,500

ekkarill92 answered 1 year ago
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