Pigeon Company owns 80% of the outstanding stock of Spiniflex Corporation, which was purchased on January 1, 2008, when Spiniflex's book values were equal to its fair values. The amount paid by Pigeon included $16,000 for goodwill.

On January 1, 2009, Pigeon purchased a truck for $40,000 which had no salvage value with a useful life of 8 years, depreciated on a straight-line basis. On January 1, 2014, Pigeon sold the truck to Spiniflex Corporation for $18,000. The truck was estimated to have a three-year remaining life on this date and no salvage value.All affiliates use the straight-line depreciation method.(30 pts.)

Required:

Prepare all relevant entries with respect to the truck.

1.Record the journal entries on Pigeon's books for 2014.

2.Record the journal entries on Spiniflex's books for 2014.

3.Prepare the consolidation entries required for Pigeon and subsidiary for 2014 as a result of this transaction.