Question

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.)

Answer 1

a.

1. Subsiadiary(Softball corporation) P& L a/c Dr $61200

To Group fixed Asset Cr $ 61200

(Being elimination of inter company purchases)

2. Group fixed A/c Dr (243000/6-30300) $10,200

To Group retained earnings $ 10,200

( Being Elimination additional depreciation)

b 1.. For sale no enrty required.

2. for addition depreciation

Group fixed asset A/c Dr $10500

To group retained earnings cr $ 10500

( being elimination of additional depreciation)

Working note: for calculation of carrying value of the truck pitcher:

Purchased on 01.01.2012 at $303,000

Depreciation Per annum= (Cost of the asset-Salvage value)/estimated useful life

= ( $303,000-0)/10 Years

=$ 303,00

No of Years completed =4 Years

Accumalated depreciation= $121,200

Carrying value as on 31.12.2015 = $ 181,800(Cost- Acc dep)

Working note:

Difference Between trasfer value and carrying value

$234,000-181,800 =$61,200