On January 1, 2014, Spelt Company sold to Pub Corporation, for $120,000, machine

Question

On January 1, 2014, Spelt Company sold to Pub Corporation, for $120,000, machinery with a book value of $90,000 (including $15,000 of accumulated depreciation), a remaining economic life of six years, and no residual value. Pub adopted the straight-line method of depreciation for the machinery. Pub owns 80% of Spelt's outstanding common stock.   Also in 2014, Pub sold land to Spelt that had originally cost Pub $70,000 in 2006. Pub charged Spelt $140,000 for the land. Both transactions were executed in cash.

Required:

A. Prepare Spelt Company's January 1, 2014, journal entry to record the sale of the machinery. Also prepare Pub’s journal entry to record the sale of the land.

B. Prepare a working paper for Pub Corporation and subsidiary summarizing the working paper eliminations (in journal entry format) with respect to the machinery and land for the three fiscal years ending 12/31/2016.

Explanation / Answer

Being Excess depreciation for Year 2016 adjusted

In the Books of Spelt Company 1/1/2014 Cash A/c Dr 120000 Accumulated Depreciation A/c Dr 15000 To Machine A/c Cr 105000 To Gain on Sale of Machine A/c Cr 30000 Being Sale of Machine Recorded and Gain relaised over book value In the Books of Pub Company 1/1/2014 Cash A/c Dr 140000 To Land A/c Cr 70000 To Gain on Sale of Land A/c Cr 70000 In The Books of Consolidated Pub A/c 31/12/2014 Machine A/c Dr 15000 Accumulated Depreciation A/c Cr 15000 Being Reinstatemnet of Accumulated Depreciation) Gain on Sale of Machinary A/c Dr 30000 Machine A/c Cr 30000 Being Unrelaised Gain asjusted in consolidation Gain on Sale of Land A/c Dr 70000 Land A/c Cr 70000 Being Unrelaised gain on land adjusted in Consolidation Accumulated Depreciation A/c DR 5000 Depreciation Expense A/c Cr 5000 being Excess depreciation Charged is adjusted in Consolidation Refer working below for Excess depreciation 31/12/2015 Accumulated Depreciation A/c Dr 5000 Depreciation Expenses A/c Cr 5000 Being Excess Depreciation for year 2015 adjusted 31/12/2016 Accumulated depreciation A/c Dr 5000 Depreciation A/c Cr 5000

Being Excess depreciation for Year 2016 adjusted

Workings for Excess depreciation Subsidiary Parent Difference WDV on Transfer date 90000 120000 30000 Useful Life 6 6 6 Depreciation 15000 20000 5000 Excess depreciation to be adjusted

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