Question

In: Accounting

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

Pam Corporation holds 70 percent ownership of Northern Enterprises. On December 31, 20X6, Northern paid Pam $28,000 for a truck that Pam had purchased for $33,000 on January 1, 20X2. The truck was considered to have a 20-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.)

*Record the entry to eliminate the gain on the truck and to correct the asset's basis.

b.

Prepare the worksheet consolidation entry or entries needed on December 31, 20X7, 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.)

*Record the entry to eliminate the gain on the truck and to correct the asset's basis.

*Record entry to adjust Accumulated Depreciation.

Solutions

Expert Solution

a.
Date Account Titles and Explaination Debit Credit
Gain on sale $ 3,250
Truck (Bal. Fig.) $ 5,000
Accumulated Depreciation $      8,250
(Being elimination of gain on sale and correct basis of asset recorded)
Workings:
Purchase price of Truck = $    33,000
Less: Accumulated Depreciation for 5 years [($33,000/ 20 years) X 5 years] = $      8,250
Depreciated value of Truck = $    24,750
Selling Price = $    28,000
Less: Depreciated value of Truck = $    24,750
Gain on sale = $      3,250
b.
Date Account Titles and Explaination Debit Credit
Investment in company $ 3,250
Truck $ 5,000
Accumulated Depreciation $8,250
(Being elimination of gain on sale and correct basis of asset recorded)
Accumulated Depreciation $217
Depreciation Expense $217
(Being accumulated depreciation adjusted)
Workings:
Accumulated Depreciation = $8,250 + [$28,000/(20 years -5 years)] - [($33,000/ 20 years) X 6 years]
= $217

ekkarill92 answered 1 year ago
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