Frazer Corporation purchased 60 percent of Minnow Corporation’s voting common st
ID: 2488490 • Letter: F
Question
Frazer Corporation purchased 60 percent of Minnow Corporation’s voting common stock on January 1, 20X1. On January 1, 20X5, Frazer received $225,000 from Minnow for a truck Frazer had purchased on January 1, 20X2, for $295,000. The truck is expected to have a 10-year useful life and no salvage value. Both companies depreciate trucks on a straight-line basis.
Prepare the worksheet consolidation entry or entries needed at December 31, 20X5, to remove the effects of the intercompany sale:
Record the entry to eliminate the gain on the truck and to correct the asset's basis.
Record the entry to eliminate the gain on the truck and to correct the asset's basis.
Record the entry to adjust Accumulated Depreciation.
Prepare the worksheet consolidation entry or entries needed at December 31, 20X6, to remove the effects of the intercompany sale.:
Record the entry to eliminate the gain on the truck and to correct the asset's basis.
Record the entry to eliminate the gain on the truck and to correct the asset's basis.
Record the entry to adjust Accumulated Depreciation.
Required: a.Prepare the worksheet consolidation entry or entries needed at December 31, 20X5, to remove the effects of the intercompany sale:
Record the entry to eliminate the gain on the truck and to correct the asset's basis.
Record the entry to eliminate the gain on the truck and to correct the asset's basis.
Record the entry to adjust Accumulated Depreciation.
b.Prepare the worksheet consolidation entry or entries needed at December 31, 20X6, to remove the effects of the intercompany sale.:
Record the entry to eliminate the gain on the truck and to correct the asset's basis.
Record the entry to eliminate the gain on the truck and to correct the asset's basis.
Record the entry to adjust Accumulated Depreciation.
Explanation / Answer
Answer a
Gain on Sale of Truck A/c Dr, $32143
Truck A/c Dr. $70000
To Depreciation Expense A/c Cr. $ 85857
To Acc. Depreciation A/c CR. $16286
Accumulated depreciation adjustment:
Required [(295000 /10 years) * 4 years] => 118000
Reported [($225000/7 years) * 1 year] => ($32143)
Required increase => $85857
Answer b
Reatined Earnings A/c Dr, $29500
Truck A/c Dr. $70000
To Depreciation Expense A/c Cr. $ 16286
To Acc. Depreciation A/c CR. $83214
Accumulated depreciation adjustment:
Required [(295000 /10 years) * 5 years] => 147500
Reported [($225000/7 years) * 2 year] => ($64286)
Required increase => $83214
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