On July $1,2015,$ Pearl Industries sold administrative equipment with a book value of $$900,000$ to its subsidiary, Shiek Shoes, for $$1,050,000.$ At the date of sale, the equipment had a remaining life of five years. It is being straight$-$line depreciated on Shiek$$s 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

Answer

Investment in Shiek

Answer

$105000$

Answer

$0$

Answer

Equipment, net

Answer

$0$

Answer

$105000$

To eliminate unconfirmed gain on intercompany transfer of equipment.

Answer

Equipment, net

Answer

Answer

$0$

Answer

Depreciation expense

Answer

$0$

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

Answer

Investment in Shiek

Answer

$0$

Answer

$0$

Answer

Equipment, net

Answer

$0$

Answer

$0$

To eliminate unconfirmed gain on intercompany transfer of equipment.

Answer

Equipment, net

Answer

$0$

Answer

$0$

Answer

Depreciation expense

Answer

$0$

Answer

$0$

To eliminate excess depreciation expense.

$($c$)$ Now assume that Shiek sells the equipment to an outside party for $$750,000$ on January $1,2019.$

What is the consolidated gain on the sale of equipment? $Answer

$0$

What is the gain reported by Shiek? $Answer

$0$

Prepare the required eliminating entries for the December $31,2019,$ consolidation working paper.

Consolidation Journal

Description Debit Credit

Answer

Investment in Shiek

Answer

$0$

Answer

$0$

Answer

Gain on sale of equipment

Answer

$0$

Answer

$0$