Question

Frazer Corporation purchased 60 percent of Minnow Corporation’s voting common stock on January 1, 20X1. On January 1, 20X5, Frazer received $255,000 from Minnow for a truck Frazer had purchased on January 1, 20X2, for $325,000. 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

Accounting title and explanation	Debit	Credit
Gain on Sale of Truck	27500
Truck	70000
Depreciation Expense		93571
Accumulated Depreciation		3929

Accumulated depreciation adjustment:
Required [(325,000/10 years) * 4 years]	130000
Reported [($255,000/7 years) * 1 year]	36429
Required increase	93571

b)

Accounting title and explanation	Debit	Credit
Retained Earnings, Jan 1	27500
Truck	70000
Depreciation Expense		89643
Accumulated Depreciation		7857

Accumulated depreciation adjustment:
Required [(325,000/10 years) * 5 years]	162500
Reported [($255,000/7 years) * 2 year]	72857
Required increase	89643