Question

Pen Corporation owned equipment with an original cost of $91,000. On January 1, 2019, Pen sold...

  1. Pen Corporation owned equipment with an original cost of $91,000. On January 1, 2019, Pen sold the equipment to Sen Company (a 60%-owned subsidiary) for a price of $82,600. At the time of the intercompany sale, the equipment had been depreciated for $18,200. The equipment has a remaining useful life of 7 years and is straight-line depreciated. On January 1, 2021, Sen sold the equipment to an outside company for $63,200.

(i) Prepare the working paper eliminating entry regarding the equipment for the year ended December 31, 2019.

(ii) Prepare the working paper eliminating entry I-1 regarding the equipment for the year ended December 31, 2020.

(iii) Prepare the working paper eliminating entry regarding the equipment for the year ended December 31, 2021.

Homework Answers

Answer #1

The profit on sale of equipment = $ ( 91,000 - 82,600 ) = $ 8,400

(i)

Date Descripton Debit Credit
31-12-2019 Equipment, net 1,200
Depreciation expense 1,200
To eliminate the excess depreciation recorded by Sen in 2019 ($8,400/7).

(ii)

Date Description Debit Credit
31-12-2020 Investment in Sen 7,200
Equipment, net 7,200
To eliminate the beginning-of-year unconfirmed gain.
$8,400 – (($8,400 / 7) x 1) = $7,200.
Equipment, net 1,200
Depreciation expense 1,200
To eliminate the excess depreciation recorded by Sen in 2020 ($8,400/7).

(iii)

Date Description Debit Credit
31-12-2021 Investment in Sen 6,000
Gain on sale of equipment 6,000
To recognize the remaining unconfirmed gain as confirmed
$8,400 – (($8,400 / 7) x 2) = $6,000.
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