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 $267,000 from Minnow for a truck Frazer had purchased on January 1, 20X2, for $337,000. 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 $267,000 from Minnow for a truck Frazer had purchased on January 1, 20X2, for $337,000. 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

a. Eliminating Entry, December 31, 2005:

E(1) Truck A/c Dr. $70000 Gain on sale of Truck A/c Dr. $31100 To Depreciation Expense A/c $4443 To Accumulated Depreciation A/c $96657

Working Note:

   Computation of gain on sale of Truck: Price Paid by Minnow $267000 Cost of Truck to Frazer $337000 Accumulated Depreciation ($337000 / 10 years) x 3years ($101100) ($235900) Gain on sale of Truck $31100

Accumulated Depreciation Adjustment : Required ($337000 / 10 years) x 4 years $134800 Reported ($267000 / 7 years) x 1 years ($38143) Required Increase $96657

b. Eliminating Entry, December 31, 2006:

E(1) Truck A/c Dr. $70000 Gain on sale of Truck A/c Dr. $26657 To Depreciation Expense A/c $4443 To Accumulated Depreciation A/c $92214

Working Note:   

Accumulated Depreciation Adjustment : Required ($337000 / 10 years) x 5 years $168500 Reported ($267000 / 7 years) x 2 years   ($76286) Required Increase    $92214

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