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 $225,000 from Minnow for a truck Frazer had purchased on January 1, 20X2, for $295,000. 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:

Record the entry to eliminate the gain on the truck and to correct the asset's basis.

Record the entry to eliminate the gain on the truck and to correct the asset's basis. Record the entry to adjust Accumulated Depreciation.

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

Record the entry to eliminate the gain on the truck and to correct the asset's basis.

Record the entry to eliminate the gain on the truck and to correct the asset's basis. Record the entry to adjust Accumulated Depreciation.

Explanation / Answer

Cost of truck frazer as on jan 1, 2002 295000 Depreciation per year (295000/10) 29500 Depreciation for 3 years 88,500 Written down value 206,500 Sale value 225000 gain on sale 18,500 Rectification entry for Frazer corporation: Debit Credit Gain on sale of truck 18,500 To Profit and loss account 18,500

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