American Company acquired 80 percent of the voting common stock of California Company. At the beginning of 2016, American Company sold equipment that had a book value of $25,000 to California Company for $30,000. The equipment had a remaining useful life of 5 years and zero salvage value. Both companies use the straight line method of depreciation for their equipment.

In the consolidation worksheet for 2018, what will be the adjustment to the Retained Earnings American Company account? Debit $3,000

How do you arrive to the $3,000?