On July 1, 2015, Pearl Industries sold administrative equipment with a book valu

Question

On July 1, 2015, Pearl Industries sold administrative equipment with a book value of $600,000 to its subsidiary, Shiek Shoes, for $700,000. At the date of sale, the equipment had a remaining life of five years. It is being straight-line depreciated on Shiek’s books. It is now December 31, 2017, the end of the accounting year, and you are preparing the working paper to consolidate the trial balances of Pearl and Shiek. Shiek still owns the equipment.

a) Prepare the necessary consolidation eliminating entries at December 31, 2017.

b)  It is now December 31, 2018. Prepare the required eliminating entries for this intercompany equipment transaction for the December 31, 2018, consolidation working paper.

c)Now assume that Shiek sells the equipment to an outside party for $300,000 on January 1, 2019. Prepare the required eliminating entries for the December 31, 2019, consolidation working paper.

Explanation / Answer

(a) Date Account Title Debit Credit 12/31/2017 Retained Earning             70,000 Depreciation             20,000 Administartive Equipment             50,000 (b ) Date Account Title Debit Credit 12/31/2018 Retained Earning             50,000 Depreciation             20,000 Administartive Equipment             30,000 (C ) selling to outside for 300,000 Date Account Title Debit Credit 01/01/2019 Cash          3,00,000 Provision for depn          4,20,000 Gain on Sale of assets          1,20,000 Administartive Equipment          6,00,000 Working Notes Calculation of the depreciation Sales Value/WDV Depn on Orginal Value Original Value/WDV Fixed Assets Depreciation 01/07/2015 Cash          6,00,000          6,00,000          5,00,000 Retained Earning          1,00,000 Assets          5,00,000 31/12/2015 Retained Earning             60,000 Provsion for Depn             60,000          5,40,000             50,000          4,50,000          90,000          10,000 31/12/2016 Retained Earning          1,20,000 Provsion for Depn          1,20,000          4,20,000          1,00,000          3,50,000          70,000          20,000 31/12/2017 Retained Earning          1,20,000 Provsion for Depn          1,20,000          3,00,000          1,00,000          2,50,000          50,000          20,000 31/12/2018 Retained Earning          1,20,000 Provsion for Depn          1,20,000          1,80,000          1,00,000          1,50,000          30,000          20,000

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