Question

Pitcher Corporation purchased 60 percent of Softball Corporation’s voting common stock on January 1, 20X1. On January 1, 20X5, Pitcher received $273,000 from Softball for a truck Pitcher had purchased on January 1, 20X2, for $353,000. 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)

Account title	debit	credit
Gain on sale of truck	$25900
Truck	$80000
Accumulated depreciation		$105900
Accumulated depreciation	$3700
Depreciation expense		$3700

Gain on sale =$273000 - [$353000 - ($353000/10 × 3) ] = $25900

Accumulated depreciation adjustment:

Required = $353000/10 × 4 = $141200

Less:Reported = 273000/7 × 1 = $39000

Required increase = $102200

Depreciation expense = ($353000/10 × 3) - $102200 = $3700

.

B)

Account title	debit	credit
Investment in softball	$22200
Truck	$80000
Accumulated Depreciation		$102200
Accumulated depreciation	$3700
Depreciation expense		$3700