PROBLEM 6 ON JANUARY 1, 2002 TRUMP COMPANY ACQUIRED ALL OF THE STOCK OF CRUZ COM
ID: 2459275 • Letter: P
Question
PROBLEM 6
ON JANUARY 1, 2002 TRUMP COMPANY ACQUIRED ALL OF THE STOCK OF CRUZ COMPANY AT BOOK VALUE. NEITHER TRUMP NOR CRUZ PAY ANY DIVIDENDS AND TRUMP USES THE INITIAL VALUE METHOD FOR ITS INVESTMENT IN CRUZ. ON JANUARY 1, 2010 TRUMP COMPANY PURCHASED A TRUCK FOR $400,000. THIS TRUCK HAS A 20 YEAR LIFE WITH NO SALVAGE AND IS BEING DEPRECIATED USING STRAIGHT LINE DEPRECIATION. ON JANUARY 1, 2014 CRUZ COMPANY PURCHASED THE TRUCK FROM TRUMP FOR $350,000 ISSUING TRUMP A 1 YEAR 10% NOTE WITH PRINCIPLE AND INTERESET DUE ON JANUARY 1 2015. CRUZ WILL DEPRECIATE THE TRUCK OVER 16 YEARS USING STRAIGHT LINE DEPRECIATION AND ZERO SALVAGE VALUE.
ON JANUARY 1, 2015 CRUZ PAID THE INTEREST AND PRINCIPLE TO TRUMP
ON JANUARY 1, 2018 CRUZ SOLD THE TRUCK TO RUBIO (AN OUTSIDE COMPANY) FOR $275,000.
REQUIRED:
A. RECORD THE JOURNAL ENTRY TRUMP MADE WHEN HE BOUGHT THE TRUCK. DETERMINE THE ANNUAL DEPRECIATION OF THE TRUCK TO TRUMP COMPANY
B. MAKE THE JOURNAL ENTRY TRUMP MAKES WHEN IT SELLS THE TRUCK TO CRUZ. MAKE THE JOURNAL ENTRY CRUZ MAKES WHEN IT BUYS THE TRUCK. DETERMINE THE ANNUAL DEPRECIATION OF THE TRUCK TO CRUZ COMPANY
C. MAKE THE JOURNAL ENTRY CRUZ MAKES WHEN IT PAYS OFF THE LOAN TO TRUMP. MAKE THE JOURNAL ENTRY CRUZ MAKES WHEN IT SELLS THE TRUCK TO RUBIO
D. THE UNCONSOLIDATED INCOMES OF TRUMP AND CRUZ FOR 2014 TO 2018 ARE AS FOLLOWS:
ON JANUARY 1 2014 TRUMP HAD CONSOLIDATED RETAINED EARNINGS OF $5,000,000
(i). WHAT IS TRUMP’S UNCONSOLIDATED AND CONSOLIATED RETAINED EARNINGS ON
12/31/14
12/31/15
12/31/16
12/31/17
12/31/18
(ii) PREPARE THE NECESSARY WORKSHEET ENTRIES NEEDED
IN 2014
IN 2015
IN 2018
Explanation / Answer
A Truck A/C dr. 400,000 To cash A/C 400,000 yearly Depriciation 400000/20= 20,000 Trum Journal Entry B Note Recevable A/C dr. 350000 To Truck A./C 320,000 To profit on sale of Truck 30,000 400000-20000*4 = 320000 Crueze Journal Entry Truck A/C dr. 350,000 To Notes Payable A/C 350,000 Yearly Depriciation 350000/16= 21875 Loan And interest Payable C Notes Payable A/C Dr. 350,000 Interese on Notes payable A/C 35,000 To Cash 385,000 Truck Sale Cash A/C dr. 275,000 To Truck 262,500 To profit on sale of Truck 12,500 350000-21875*4 = 262,500 D Unconsolidated Earning 01-01-2014 5,000,000 Add: Profit on sale of Truck 30,000 31.12.2014 5,030,000
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