Question
Downstream Intercompany Equipment Transactions On July 1, 2015, Pearl Industries sold administrative equipment with a book value of $1,200,000 to its subsidiary, Shiek Shoes, for
Downstream Intercompany Equipment Transactions
On July 1, 2015, Pearl Industries sold administrative equipment with a book value of $1,200,000 to its subsidiary, Shiek Shoes, for $1,400,000. At the date of sale, the equipment had a remaining life of five years. It is being straight-line depreciated on Shieks books. It is now December 31, 2017, the end of the accounting year, and you are preparing the working paper to consolidate the trial balances of Pearl and Shiek. Shiek still owns the equipment.
Required
(a) Prepare the necessary consolidation eliminating entries at December 31, 2017.
Consolidation Journal | ||
---|---|---|
Description | Debit | Credit |
AnswerInvestment in ShiekEquipment, netDepreciation expenseGain on sale of equipmentEquity in net income of Shiek | Answer | Answer |
AnswerInvestment in ShiekEquipment, netDepreciation expenseGain on sale of equipmentEquity in net income of Shiek | Answer | Answer |
To eliminate unconfirmed gain on intercompany transfer of equipment. | ||
AnswerInvestment in ShiekEquipment, netDepreciation expenseGain on sale of equipmentEquity in net income of Shiek | Answer | Answer |
AnswerInvestment in ShiekEquipment, netDepreciation expenseGain on sale of equipmentEquity in net income of Shiek | Answer | Answer |
To eliminate excess depreciation expense. |
(b) It is now December 31, 2018. Prepare the required eliminating entries for this intercompany equipment transaction for the December 31, 2018, consolidation working paper.
Consolidation Journal | ||
---|---|---|
Description | Debit | Credit |
AnswerInvestment in ShiekEquipment, netDepreciation expenseGain on sale of equipmentEquity in net income of Shiek | Answer | Answer |
AnswerInvestment in ShiekEquipment, netDepreciation expenseGain on sale of equipmentEquity in net income of Shiek | Answer | Answer |
To eliminate unconfirmed gain on intercompany transfer of equipment. | ||
AnswerInvestment in ShiekEquipment, netDepreciation expenseGain on sale of equipmentEquity in net income of Shiek | Answer | Answer |
AnswerInvestment in ShiekEquipment, netDepreciation expenseGain on sale of equipmentEquity in net income of Shiek | Answer | Answer |
To eliminate excess depreciation expense. |
(c) Now assume that Shiek sells the equipment to an outside party for $1,000,000 on January 1, 2019.
What is the consolidated gain on the sale of equipment? $Answer
What is the gain reported by Shiek? $Answer
Prepare the required eliminating entries for the December 31, 2019, consolidation working paper.
Consolidation Journal | ||
---|---|---|
Description | Debit | Credit |
AnswerInvestment in ShiekEquipment, netDepreciation expenseGain on sale of equipmentEquity in net income of Shiek | Answer | Answer |
AnswerInvestment in ShiekEquipment, netDepreciation expenseGain on sale of equipmentEquity in net income of Shiek | Answer | Answer |
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started