Machinery Sale On January 1, 2016 Jason Company sold a machine to Seafood Compan
ID: 2548552 • Letter: M
Question
Machinery Sale On January 1, 2016 Jason Company sold a machine to Seafood Company for $30,000. The machine had an original cost of $24,000, and accumulated depreciation on the asset was $9,000 at the time of the sale. The machine has a 5-year remaining life and will be depreciated on a straight-line basis with no salvage value. Seafood Company is an 80%-owned subsidiary of Jason Company. 1. Explain the adjustments that would have to be made to arrive at consolidated net income for the years 2016 through 2020 as a result of this sale. . Prepare the dimination that would be required on the December 31, 2016, consolidated worksheet as a result of this sale. 3. Prepare the entry for the December 31, 2017, worksheet as a result of this sale.Explanation / Answer
PART-1) In the year 2016, The inter-company gain of $17,000 should be eliminated and machinery accounts need to be reduced to Jason's book value. Accumulated Depreciation should be reduced to the amount based on Jason's original book value.
For the year 2017-2020, Inter-company gains need to be eliminated via retained earning, machinery have to be reduced to cost, and depreciation should be adjusted to reflect prior periods. Current year depreciation have to be adjusted based on book value
PART-2)
Dr. Gain on Sale 17,000
Cr. Machine 17,000
Dr. Accumulated Depreciation 3,400
Cr. Depreciation Expense 3,400
PART-3)
Dr. Retained Earnings 13,600
Dr. Accumulated Depreciation 3,400
Cr. Machine 17,000
Dr. Accumulated Depreciation 3,400
Cr. Depreciation Expense 3,400
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