Problem 2

On January 1, 2014, Pharma Company purchased equipment from its 80%-owned subsidiary for $2,400,000. On the date of the sale, the carrying value of the equipment on the books of the subsidiary company was $1,800,000. The equipment had a remaining useful life of six years on January 2014. On January 1, 2015, Pharma Company sold the equipment to an outside party for $2,200,000.

Required:

A. Prepare, in general journal form, the entries necessary in 2014 and 2015 on the books of Pharma Company to account for the purchase and sale of the equipment.

B. Determine the consolidated gain or loss on the sale of the equipment and prepare, in general journal form, the entry necessary on the December 31, 2015 consolidated statements workpaper to properly reflect this gain or loss.