Question
Downstream Intercompany Depreciable Asset Transactions On July 1, 2021, Pearl Industries sold administrative equipment with a book value of $1,000,000 to its subsidiary, Sheik Shoes,
Downstream Intercompany Depreciable Asset Transactions
On July 1, 2021, Pearl Industries sold administrative equipment with a book value of $1,000,000 to its subsidiary, Sheik Shoes, for $800,000. At the date of sale, the equipment had a remaining life of five years. It is being straight-line depreciated on Sheiks books. It is now December 31, 2023, the end of the accounting year, and you are preparing the working paper to consolidate the trial balances of Pearl and Sheik. Sheik still owns the equipment.
Required
(a) Prepare the required eliminating entries for this intercompany equipment sale for the December 31, 2023, consolidation working paper.
| Consolidation Journal | ||
|---|---|---|
| Description | Debit | Credit |
| AnswerInvestment in SheikEquipment, netDepreciation expenseGain on sale of equipmentEquity in net income of Sheik
| Answer
| Answer
|
| AnswerInvestment in SheikEquipment, netDepreciation expenseGain on sale of equipmentEquity in net income of Sheik
| Answer
| Answer
|
| To eliminate the beginning-of-year unconfirmed loss. | ||
| AnswerInvestment in SheikEquipment, netDepreciation expenseGain on sale of equipmentEquity in net income of Sheik
| Answer
| Answer
|
| AnswerInvestment in SheikEquipment, netDepreciation expenseGain on sale of equipmentEquity in net income of Sheik
| Answer
| Answer
|
| To correct the depreciation expense recorded by Sheik in 2023 | ||
(b) It is now December 31, 2024. Prepare the required eliminating entries for this intercompany equipment transaction for the December 31, 2024 consolidation working paper.
| Consolidation Journal | ||
|---|---|---|
| Description | Debit | Credit |
| AnswerInvestment in SheikEquipment, netDepreciation expenseGain on sale of equipmentEquity in net income of Sheik
| Answer
| Answer
|
| AnswerInvestment in SheikEquipment, netDepreciation expenseGain on sale of equipmentEquity in net income of Sheik
| Answer
| Answer
|
| To eliminate the beginning-of-year unconfirmed loss. | ||
| AnswerInvestment in SheikEquipment, netDepreciation expenseGain on sale of equipmentEquity in net income of Sheik
| Answer
| Answer
|
| AnswerInvestment in SheikEquipment, netDepreciation expenseGain on sale of equipmentEquity in net income of Sheik
| Answer
| Answer
|
| To correct depreciation expense recorded by Sheik in 2024 | ||
(c) Now assume that Sheik sells the equipment to an outside party for $400,000 on January 1, 2025.
What is the consolidated gain on the sale of equipment? $Answer
What is the gain reported by Sheik? $Answer
Prepare the required eliminating entries for the December 31, 2025 consolidation working paper.
| Consolidation Journal | ||
|---|---|---|
| Description | Debit | Credit |
| AnswerInvestment in SheikEquipment, netDepreciation expenseGain on sale of equipmentEquity in net income of Sheik
| Answer
| Answer
|
| AnswerInvestment in SheikEquipment, netDepreciation expenseGain on sale of equipmentEquity in net income of Sheik
| Answer
| Answer
|
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Frauds Of The Past Lessons For The Future A Student Led Journey Through The World Of Auditing
Authors: Dr. Manjari Sharma, Mr. Pragadeesh SP, Mr. Sivanaresh A
1st Edition
B0CGKRP289, 978-6206753247
