pat company owns 240,000 of the 400,000 shares ompany owns 240,000 of the 400,00

Question

pat company owns 240,000 of the 400,000 shares ompany owns 240,000 of the 400,000 shares outstanding of Sane Corporation. Sane Corporation sold ent to Pat Company on January 1, 2013 for $650,000. The equipment was originally purchased by Sane Corporation on January 1, 2009 for $1, 600,000 and at that time its estimated depreciable life was 10 years. The equipment is estimated to have a remaining useful life of five years Required: on January 1, 2013. Both companies use the straight-line method to depreciate equipment. 1. For 2013 prepare (a) the journal entries necessary to account for the equipment on the books of Sane and Pat and (b) the elimination entries related to the equipment for the consolidated statements workpaper 2. For 2014 prepare (a) the journal entries necessary to account for the equipment on the books of Sane and Pat and (b) the elimination entries related to the equipment for the consolidated statements workpaper.

Explanation / Answer

Original Cost (1st Jan 2009)        16,00,000 Life 10 Years Per Year           1,60,000 Used 5 Years Original Cost        16,00,000 Total Depreciation           8,00,000 Cost of equipment           8,00,000 Sold           6,50,000 Loss on Sale of Equipment         -1,50,000 For the Year 2013 1 Sale of Equipment - Sane Company Pat Company           6,50,000 Loss on Sale of Equipment           1,50,000 Acc Depn on Equipment           8,00,000    Equipment Account 16,00,000 (Sale of Equipment) 2 Purchase of Equipment - Pat Company Equipment Account           6,50,000    Sane Company     6,50,000 3 60% of Sans shares are holding by Pat Company, hence 60% loss also should borne by Pat Loss on Sale of Machine           1,50,000 60% Loss              90,000 4 Sale proceeds of Machine           6,50,000 Debtors in Sane Company and Creditors in Pat Company should be eliminated in consolidate Financials to that extent of 650,000 For the Year 2014 1 Depreciation - Pat Company Depreciation           1,30,000    Acc Depn on Equipment     1,30,000

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