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13 September, 13:41

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.)

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Answers (2)
  1. 13 September, 13:47
    0
    A)

    gain at disposal 25,900 debit

    truck 80,000 debit

    acc depreciation truck 105,900 credit

    --to eliminate the sale--

    acc dep truck 3,100 debit

    depreication expense 3,100 credit

    --to elimiante additional depreciation on the truck from subsidiary--

    B) in the next year we also adjust for the additional depreciation:

    acc dep truck 3,100 debit

    depreication expense 3,100 credit

    --to eliminate additional depreciation on the truck from subsidiary--

    and, for the differnece n the truck valuation we reduce the retained earnings as the truck account keeps being recorded at 273,000 in the subsidiary accounting.

    retained earnins 25,900 debit

    truck 80,000 debit

    acc depreciation truck 105,900 credit

    --to eliminate the sale--

    Explanation:

    Pitcher receive cash for 273,000

    Gives a truck with a book value of : 247,100

    Therofe it recognize gain for: 25,900

    353,000 / 10 = 35,300 depreciation expense

    35,300 x 3 years = 105,900 accumulated depreciation

    book value

    353,000 - 105,900 = 247,100

    We must re-enter the truck as if the sale didin't occur and eliminate the gain.

    before sale value 353,000 after sale 273,000

    toeliminate we must increase the truck by 80,000.

    Also, we have to adjust the depreciation on the truck

    the depreicaiton should continue to be 35,900

    but hte subsidiary made record for:

    273,000 / 7 = 39,000

    So, we have to eliminate 3,100 depreciation expense.
  2. 13 September, 14:05
    0
    a). 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

    Account title debit credit

    Gain on sale of truck $25900

    Truck $80000

    Accumulated depreciation $105900

    Accumulated depreciation $3700

    Depreciation expense $3700

    b).

    Account title debit credit

    Investment in softball $22200

    Truck $80000

    Accumulated Depreciation $102200

    Accumulated depreciation $3700

    Depreciation expense $3700
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