Frazer Corporation purchased 60 percent of Minnow Corporation’s voting common st

Question

Frazer Corporation purchased 60 percent of Minnow Corporation’s voting common stock on January 1, 20X1. On December 31, 20X5, Frazer received $258,000 from Minnow for a truck Frazer had purchased on January 1, 20X2, for $348,000. The truck is expected to have a 10-year useful life and no salvage value. Both companies depreciate trucks on a straight-line basis.

a. Prepare the worksheet consolidation entry or entries needed at December 31, 20X5, to remove the effects of the intercompany sale. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

1. Record the entry to eliminate the gain on the truck and to correct the asset's basis.

b. Prepare the worksheet consolidation entry or entries needed at December 31, 20X6, to remove the effects of the intercompany sale. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

1. Record the entry to eliminate the gain on the truck and to correct the asset's basis.

2. Record the entry to adjust Accumulated Depreciation.

Explanation / Answer

1. Depreciation on truck from Jan 01, 20X2 to Dec 31, 20X5 = 34800x4 = 139,200

WDV of truck on Dec 31, 20X5 = 348,000 - 139,200 = 244,800

Sale vale of truck to Minnow = 258,000

Profit on sale = 13,200

Entry to eliminate the gain on truck:

Gain on sale of truck (Debit) $13,200

Retained Earnings (Credit) $13,200

2. Entry to adjust Accumulated Depreciation:

Retained Earning (Debit) $13,200

Accumulated Depreciation (Credit) $13,200

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