Frazer Corporation purchased 60 percent of Minnow Corporation's voting common stock on January 1, 20X1. On January 1, 20X5, Frazer received $225,000 from Minnow for a truck Frazer had purchased on January 1, 20X2, for $295,000. The truck is expected to have a 10-year useful life and no salvage value. Both companies depreciate trucks on a straight-line basis.
a. Prepare the worksheet consolidation entry or entries needed at December 31, 20X5, to remove the effects of the intercompany sale:
Record the entry to eliminate the gain on the truck and to correct the asset's basis.
Record the entry to adjust Accumulated Depreciation.
b. Prepare the worksheet consolidation entry or entries needed at December 31, 20X6, to remove the effects of the intercompany sale.:
Record the entry to eliminate the gain on the truck and to correct the asset's basis.
Record the entry to adjust Accumulated Depreciation.
a. Depreciation = (295000-0)/10 = $29500
Accumulated depreciation = 29500*4 = $118000
Amount received from Minnow Corporation | $225,000 |
Less: carrying value of the truck (295000-118000) | 177,000 |
Gain on sale of truck | $48,000 |
Date | Accounts | Debit | Credit |
Dec 31, 20X5 | Gain in sale | $48,000 | |
Truck (295000-225000) | $70,000 | ||
Accumulated depreciation | $118000 |
b.
Date | Accounts | Debit | Credit |
Dec 31, 20X5 | Investment in Minnow Corporation | $48,000 | |
Truck (295000-225000) | $70,000 | ||
Accumulated depreciation | $118000 |
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