Various Intercompany Transactions

In consolidation of Perpetual Industries and Sand Hill Company at December 31, 2023, you assemble the following data related to unconfirmed intercompany profits:

	January 1, 2023	December 31, 2023
Land	$4,000,000	$4,000,000
Merchandise inventory	2,400,000	2,200,000
Equipment	1,200,000	1,050,000

The equipment is carried on the purchasing affiliates books at a cost of $6,000,000 and accumulated depreciation of $1,800,000 (straight-line, no salvage value) at December 31, 2023. Accumulated depreciation at the date of intercompany sale was $1,000,000; the original intercompany gain was $1,500,000. Intercompany merchandise sales for 2023 between Perpetual and Sand Hill were $40,000,000.

Required

a. Assume that all of the above unconfirmed intercompany profits arose from upstream sales. Prepare the eliminating entries related to these intercompany transactions when consolidating the financial statements of Perpetual Industries and Sand Hill Company at December 31, 2023.

Enter answers using all zeros (do not abbreviate answers to millions or thousands).

Description		Debit	Credit
AnswerAccumulated depreciationCost of goods soldDepreciation expenseEquipmentEquity in net income of Sand HillInventoryInvestment in Sand HillLandRetained earnings - Sand HillSales revenue		Answer	Answer
AnswerAccumulated depreciationCost of goods soldDepreciation expenseEquipmentEquity in net income of Sand HillInventoryInvestment in Sand HillLandRetained earnings - Sand HillSales revenue		Answer	Answer
To eliminate intercompany profit from sale of land.
AnswerAccumulated depreciationCost of goods soldDepreciation expenseEquipmentEquity in net income of Sand HillInventoryInvestment in Sand HillLandRetained earnings - Sand HillSales revenue		Answer	Answer
AnswerAccumulated depreciationCost of goods soldDepreciation expenseEquipmentEquity in net income of Sand HillInventoryInvestment in Sand HillLandRetained earnings - Sand HillSales revenue		Answer	Answer
To eliminate intercompany profit in beginning inventory.
AnswerAccumulated depreciationCost of goods soldDepreciation expenseEquipmentEquity in net income of Sand HillInventoryInvestment in Sand HillLandRetained earnings - Sand HillSales revenue		Answer	Answer
AnswerAccumulated depreciationCost of goods soldDepreciation expenseEquipmentEquity in net income of Sand HillInventoryInvestment in Sand HillLandRetained earnings - Sand HillSales revenue		Answer	Answer
To eliminate intercompany sales and purchases.
AnswerAccumulated depreciationCost of goods soldDepreciation expenseEquipmentEquity in net income of Sand HillInventoryInvestment in Sand HillLandRetained earnings - Sand HillSales revenue		Answer	Answer
AnswerAccumulated depreciationCost of goods soldDepreciation expenseEquipmentEquity in net income of Sand HillInventoryInvestment in Sand HillLandRetained earnings - Sand HillSales revenue		Answer	Answer
To eliminate intercompany profit in ending inventory.
AnswerAccumulated depreciationCost of goods soldDepreciation expenseEquipmentEquity in net income of Sand HillInventoryInvestment in Sand HillLandRetained earnings - Sand HillSales revenue		Answer	Answer
Accumulated depreciation		Answer	Answer
AnswerAccumulated depreciationCost of goods soldDepreciation expenseEquipmentEquity in net income of Sand HillInventoryInvestment in Sand HillLandRetained earnings - Sand HillSales revenue		Answer	Answer
To eliminate unconfirmed gain on intercompany transfer of equipment.
AnswerAccumulated depreciationCost of goods soldDepreciation expenseEquipmentEquity in net income of Sand HillInventoryInvestment in Sand HillLandRetained earnings - Sand HillSales revenue		Answer	Answer
AnswerAccumulated depreciationCost of goods soldDepreciation expenseEquipmentEquity in net income of Sand HillInventoryInvestment in Sand HillLandRetained earnings - Sand HillSales revenue		Answer	Answer
To eliminate excess depreciation expense.
AnswerAccumulated depreciationCost of goods soldDepreciation expenseEquipmentEquity in net income of Sand HillInventoryInvestment in Sand HillLandRetained earnings - Sand HillSales revenue		Answer	Answer
AnswerAccumulated depreciationCost of goods soldDepreciation expenseEquipmentEquity in net income of Sand HillInventoryInvestment in Sand HillLandRetained earnings - Sand HillSales revenue		Answer	Answer
To restate the asset and accumulated depreciation accounts.

b. Repeat part a assuming that all of the above unconfirmed intercompany profits arose from downstream sales.

Enter answers using all zeros (do not abbreviate answers to millions or thousands).

Description		Debit	Credit
AnswerAccumulated depreciationCost of goods soldDepreciation expenseEquipmentEquity in net income of Sand HillInventoryInvestment in Sand HillLandRetained earnings - Sand HillSales revenue		Answer	Answer
AnswerAccumulated depreciationCost of goods soldDepreciation expenseEquipmentEquity in net income of Sand HillInventoryInvestment in Sand HillLandRetained earnings - Sand HillSales revenue		Answer	Answer
To eliminate intercompany profit from sale of land.
AnswerAccumulated depreciationCost of goods soldDepreciation expenseEquipmentEquity in net income of Sand HillInventoryInvestment in Sand HillLandRetained earnings - Sand HillSales revenue		Answer	Answer
AnswerAccumulated depreciationCost of goods soldDepreciation expenseEquipmentEquity in net income of Sand HillInventoryInvestment in Sand HillLandRetained earnings - Sand HillSales revenue		Answer	Answer
To eliminate intercompany profit in beginning inventory.
AnswerAccumulated depreciationCost of goods soldDepreciation expenseEquipmentEquity in net income of Sand HillInventoryInvestment in Sand HillLandRetained earnings - Sand HillSales revenue		Answer	Answer
AnswerAccumulated depreciationCost of goods soldDepreciation expenseEquipmentEquity in net income of Sand HillInventoryInvestment in Sand HillLandRetained earnings - Sand HillSales revenue		Answer	Answer
To eliminate intercompany sales and purchases.
AnswerAccumulated depreciationCost of goods soldDepreciation expenseEquipmentEquity in net income of Sand HillInventoryInvestment in Sand HillLandRetained earnings - Sand HillSales revenue		Answer	Answer
AnswerAccumulated depreciationCost of goods soldDepreciation expenseEquipmentEquity in net income of Sand HillInventoryInvestment in Sand HillLandRetained earnings - Sand HillSales revenue		Answer	Answer
To eliminate intercompany profit in ending inventory.
AnswerAccumulated depreciationCost of goods soldDepreciation expenseEquipmentEquity in net income of Sand HillInventoryInvestment in Sand HillLandRetained earnings - Sand HillSales revenue		Answer	Answer
Accumulated depreciation		Answer	Answer
AnswerAccumulated depreciationCost of goods soldDepreciation expenseEquipmentEquity in net income of Sand HillInventoryInvestment in Sand HillLandRetained earnings - Sand HillSales revenue		Answer	Answer
To eliminate unconfirmed gain on intercompany transfer of equipment.
AnswerAccumulated depreciationCost of goods soldDepreciation expenseEquipmentEquity in net income of Sand HillInventoryInvestment in Sand HillLandRetained earnings - Sand HillSales revenue		Answer	Answer
AnswerAccumulated depreciationCost of goods soldDepreciation expenseEquipmentEquity in net income of Sand HillInventoryInvestment in Sand HillLandRetained earnings - Sand HillSales revenue		Answer	Answer
TTo eliminate excess depreciation expense.
AnswerAccumulated depreciationCost of goods soldDepreciation expenseEquipmentEquity in net income of Sand HillInventoryInvestment in Sand HillLandRetained earnings - Sand HillSales revenue		Answer	Answer
AnswerAccumulated depreciationCost of goods soldDepreciation expenseEquipmentEquity in net income of Sand HillInventoryInvestment in Sand HillLandRetained earnings - Sand HillSales revenue		Answer	Answer
To restate the asset and accumulated depreciation accounts.