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 $288,000 from Minnow for a truck Frazer had purchased on January 1, 20X2, for $378,000. 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 $288,000 from Minnow for a truck Frazer had purchased on January 1, 20X2, for $378,000. 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

Answer 1. Journal Entry Date Particulars Dr. Amt. Cr. Amt. 1 Gain on Sale of Truck                                 23,400 $288,000 - $264,600 Truck                                                                 90,000 $378,000 - $288,000    Depreciation Exp.              3,343 $41,143 - $37,800    Accumulated Depreciation          110,057 Accumulated Dep. Adjustment: Required - $378,000 X 4 / 10          151,200 Reported - $288,000 / 7            41,143 Required Increase          110,057 Answer 2. Journal Entry Date Particulars Dr. Amt. Cr. Amt. 1 Retained Earnings                           Dr.            20,057 Truck                                                      Dr.            90,000    To Depreciation Expenses              3,343    To Accumulated Depreciation          106,714 Accumulated Dep. Adjustment Required - $378,000 X 5/10          189,000 Reported - $288,000 x 2/7            82,286 Required Increase          106,714

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