Example 4
P Company owns 80% of S Company's Common Stock.
P Company sold a machine to S Company for $30,000 on 1/1/2015.
The machine had an original cost of $24,000 & had accumulated depreciation of $9,000 at the time of the sale.
The machine has a 5 year remaining life & will be depreciated on a straight-line basis with no salvage value.
Required:
1) Explain the adjustments that would have to be made to arrive at consolidated net income for the next 5 years as a result of the sale.
2) Prepare the elimination entry that would be required at the end of 2015 and 2016.