ON JANUARY 1, 2001 BILBO COMPANY BOUGHT ALL THE OUTSTANDING STOCK OF FROTO COMPA
ID: 2444628 • Letter: O
Question
ON JANUARY 1, 2001 BILBO COMPANY BOUGHT ALL THE OUTSTANDING STOCK OF FROTO COMPANY AT BOOK VALUE. ON JANUARY 1, 2010 BILBO COMPANY PURCHASED A TRUCK FOR $80,000. THIS TRUCK IS EXPECTED TO LAST 9 YEARS AND HAVE A $8000 SALVAGE VALUE. BILBO USES STRAIGHT LINE DEPRECIATION. ON JANUARY 1, 2014 BILBO SOLD THE TRUCK TO FROTO FOR $75000. FROTO GAVE BILBO A 1 YEAR 10% NOTE WITH PRINCIPLE AND INTEREST TO BE PAID JANUARY 1, 2015. FROTO BELIEVES THE TRUCK WILL LAST 5 YEARS AND HAVE AN $8000 SALVAGE VALUE. FROTO ALSO USES STRAIGHT LINE DEPRECIATION. ON JANUARY 1, 2016 FROTO SOLD THE TRUCK TO MORDOR, AN OUTSIDE COMPANY FOR $55,000. NOTE: BILBO USED THE INITIAL VALUE METHOD TO ACCOUNT FOR ITS INVESTMENT IN FROTO AND FROTO DOES NOT PAY ANY DIVIDENDS
REQUIRED:
MAKE THE JOURNAL ENTRY BILBO MADE WHEN IT BOUGHT THE TRUCK
DETERMINE THE ANNUAL DEPRECIATION OF THE TRUCK TO BILBO
PREPARE THE JOURNAL ENTRY BILBO MADE WHEN IT SOLD THE TRUCK TO FROTO
PREPARE THE JOURNAL ENTRY FROTO MADE WHEN IT BOUGHT THE TRUCK
DETERMINE THE ANNUAL DEPRECIATION OF THE TRUCK TO FROTO
PREPARE ANY WORKSHEET ENTRIES NEEDED IN 2014 CONNECTED WITH THIS TRUCK
IN 2014 BILBO REPORTED (UNCONSOLIDATED) INCOME OF $900,000 AND FROTO REPORTED INCOME OF $88,000. WHAT WAS CONSOLIDATED INCOME IN 2014?
PREPARE ANY WORKSHEET ENTRIES NEEDED IN 2015 CONNECTED WITH THIS TRUCK
IN 2015 BILBO REPORTED (UNCONSOLIDATED) INCOME OF $900,000 AND FROTO REPORTED INCOME OF $88,000. WHAT WAS CONSOLIDATED INCOME IN 2015?
PREPARE THE JOURNAL ENTRY FROTO MADE IN 2016 WHEN IT SOLD THE TRUCK TO MORDOR FOR CASH.
PREPARE ANY WORKSHEET ENTRIES NEEDED IN 2016
IN 2016, BILBO REPORTED (UNCONSOLIDATED) INCOME OF $900,000 AND FROTO REPORETED INCOME IF $90,000 WHAT WAS CONSOLIDTED INCOME IN 2016?
WHAT GAIN OR LOSS DO WE SHOW ON THE CONSOLIDATED INCOME STATEMENT IN 2016?
Explanation / Answer
Journal Entries:
Calculation of annual depreciation for Bilbo: Cost - Salvage Value / Life in years
Annual Depreciation = 80,000 - 8,000 / 9 = 8,000
Total Depreciation in 4 Years = 8000 x 4 = $32,000
Book value on 1 Jan 2014 = 80,000 - 32,000 = 48,000
Date Account Title Debit Credit Jan 1 2010 Truck 80,000 Cash 80,000 (Recording purchase of truck) Jan 1 2014 Cash 75,000 Accumulated Depreciation 32,000 Truck 80,000 Gain on Sale of Truck 27,000 (Recording of sale) Journal Entry by Froto: 1 Jan 2014 Truck 75,000 Cash 75,000Related Questions
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