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 January 1, 20X5, Frazer received $285,000 from Minnow for a truck Frazer had purchased on January 1, 20X2, for $335,000. 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. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

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.)

Frazer Corporation purchased 60 percent of Minnow Corporation’s voting common stock on January 1, 20X1. On January 1, 20X5, Frazer received $285,000 from Minnow for a truck Frazer had purchased on January 1, 20X2, for $335,000. The truck is expected to have a 10-year useful life and no salvage value. Both companies depreciate trucks on a straight-line basis.

Explanation / Answer

Answer:a

Gain on sale of Truck A/C Dr. $50500

Truck A/C Dr.                $50500

    To Accumulated depreciation A/C           $7214

     To Depreciation A/C                               $93286

Accumulated depreciation adjustment:

Required [(335,000/10 years) * 4 years] $134,000

Reported [($285,000/7 years) * 1 year] ($40714)

Required increase $93286

Answer:b

Retained Earnings, Jan 1 A/C Dr. $43286

Truck A/C Dr.                            $ 50500

        To Depreciation Expense A/C    $ 7214

        To Accumulated Depreciation A/C $86072

Accumulated depreciation adjustment:

Required [(335,000/10 years) * 5 years] $167500

Reported [($285,000/7 years) * 2 year] ($81428)

Required increase $86072

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