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 $219,000 from Minnow for a truck Frazer had purchased on January 1, 20X2, for $289,000. The truck is expected to have a 10-year useful life and no salvage value. Both companies depreciate trucks on a straight-line basis.

Required: a. Prepare the worksheet consolidation entry or entries needed at December 31, 20X5, to remove the effects of the intercompany sale.

b. Prepare the worksheet consolidation entry or entries needed at December 31, 20X6, to remove the effects of the intercompany sale.

Explanation / Answer

Book Value of truck as on Jan 1, 2015 in the books of Fazer = 289000 - (3 * (289000/10))

= 289000 - (3 * 28900)

= 289000 - 86700

= $202,300

Profit on sale of the truck for Fazer Corporation = 219000 - 202300

= $16,700

% of profit on sale of truck to be reversed = 60%

Profit on sale of truck to be reversed = 167000 * 60%

= $10,020.

a.) Other Comprehensive Income A/c Dr 10,020

To Truck A/c 10,020

Profit & Loss A/c Dr 10,020

To Depreciation A/c 10,020

b.) Truck A/c Dr 10,020

.To Profit & Loss A/c 10,020

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