Concept Introduction:
The intercompany transactions occur when the unit of legal entity is having transactions with another unit of the similar entity. This transaction can be divided into two categories such as direct and indirect intercompany transfer. The direct transfer occurs when there is transfer between the different units of the same entity and indirect transfer occurs when the unit of entity acquires debt or assets issued to unrelated entity through another unit of the same entity. This type of transfer will help the entity in improving the flow of finance and asset in efficient manner.
Requirement 1
The consolidated entries to remove the effect of the intercompany sale of land.
Concept Introduction:
The intercompany transactions occur when the unit of legal entity is having transactions with another unit of the similar entity. This transaction can be divided into two categories such as direct and indirect intercompany transfer. The direct transfer occurs when there is transfer between the different units of the same entity and indirect transfer occurs when the unit of entity acquires debt or assets issued to unrelated entity through another unit of the same entity. This type of transfer will help the entity in improving the flow of finance and asset in efficient manner.
Requirement 2
The consolidated entries to remove the effect of the intercompany sale of land.
Want to see the full answer?
Check out a sample textbook solutionChapter 7 Solutions
EBK ADVANCED FINANCIAL ACCOUNTING
- 3-During 2020, Parent sells land to Subsidiary for $226,800. The land had a book value of $159,000. The land is then sold to an unaffiliated party for $303,000 in 2024. Required:a. Prepare the consolidation entry related to the land sale for 2020.b. Prepare the consolidation entry related to the land sale for 2021.c. Prepare the consolidation entry related to the land for 2024.d. What will be the gain on sale on the 2024 consolidated income statement?arrow_forwardStiller Company, an 80% owned subsidiary of Leo Company, purchased land from Leo on March 1, 2020, for $75,000. The land originally cost Leo $60,000. Stiller reported net income of $125,000 and $140,000 for 2020 and 2021, respectively. Leo uses the equity method to account for its investment. On a consolidation worksheet, what adjustment would be made for 2020 regarding the land transfer?arrow_forwardPlumber Corporation owns 60 percent of Socket Corporation’s voting common stock. On December 31, 20X4, Plumber paid Socket $234,000 for dump trucks Socket had purchased on January 1, 20X2. Both companies use straight-line depreciation. The consolidation entry included in preparing consolidated financial statements at December 31, 20X4, was Consolidation Worksheet Entry Debit Credit Trucks 21,000 Gain on Sale of Trucks 30,000 Accumulated Depreciation 51,000 a)What amount did Socket pay to purchase the trucks on January 1, 20X2? b)What was the economic life of the trucks on January 1, 20X2? c)Prepare the worksheet consolidation entry needed in preparing the consolidated financial statements at December 31, 20X5. Note: If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round your answers to whole dollar.arrow_forward
- Phobos Company holds 80 percent of Simons Company's voting shares. During the preparation of consolidated financial statements for 20X9, the following consolidation entry was made: Account Investment in Simons NCI in NA of Simons Land Which of the following statements is correct? Debit 40,000 10,000 O Simons Company purchased land from Phobos Company during 20X9. O Phobos Company purchased land from Simons Company during 20X9. O Phobos Company purchased land from Simons Company before January 1, 20X9. O Simons Company purchased land from Phobos Company before January 1, 20X9. Credit 50,000arrow_forwardPreparing the consolidation entries for sale of land Assume that during 2015 a wholly owned subsidiary sells land that originally cost $450,000 to its parent for a sale price of $500,000. The parent holds the land until it sells the land to an unaffiliated company on December 31, 2019. The parent uses the equity method of pre-consolidation bookkeeping a. Prepare the required [] consolidation entry in 2015. Description gain Gain on a Cash b. Prepare the required [] consolidation entry required at the end of each year 2016 through 2018 Description Debit Credit gain Retained earnings Land gain Equityment Gain on sa Debit x 50,000 ✓ L c. Assume that the parent re-sells the land outside of the consolidated group for $525,000 on December 31, 2019. Prepare the journal entry made by the parent to record the sale and the required 3 consolidation entry for 2019. Description Credit 50,000 Debi 525,000 0✔ 0✔ Credit 25,000 0✔ 50,000 Dx DU 25,000x d. What will be the amount of gain reported in the…arrow_forwardPatch Corporation purchased land from Sub1 Corporation for $400,000 on December 3, 20X5. This purchase followed a series of transactions between Patch-controlled subsidiaries. On January 23, 20X5, Sub3 Corporation purchased the land from a nonaffiliate for $270,000. It sold the land to Sub2 Company for $240,000 on July 15, 20X5, and Sub2 sold the land to Sub1 for $275,000 on September 5, 20X5. Patch has control of the following companies: Subsidiary Level of Ownership 20X5 Net Income Sub3 60 percent $160,000 Sub2 90 percent $240,000 Sub1 70 percent $190,000 Patch reported income from its separate operations of $345,000 for 20X5. Based on the preceding information, at what amount should the land be reported in the consolidated balance sheet as of December 31, 20X5? $270,000 $240,000 $275,000 $400,000arrow_forward
- Assume the Chapman Company acquired Abernethy's common stock for $490,000 in cash. As of January 1, 2017, Abernethy's land had a fair value of $90,000, its buildings were valued at $160,000, and its equipment was appraised at $180,000. Chapman uses the equity method for this investment. Prepare consolidation worksheet entries for December 31, 2017, and December 31, 2018.arrow_forwardP Company owns 80% of the outstanding common stock of S Company. On January 1. 2018, S Company sold land to P Company for OMR 500,000. S Company originally purchased the land for OMR 300,000. On January 1, 2019, P Company Sold the land purchased from S Company to a company outside the affiliated group for OMR 600,000. Prepare the journal entry of intercompany sales. Prepare in general journal form the workpaper entries necessary because of the inter company sale of land in the consolidated financial statements workpaper for the year ended December 31, 2019. Difference between Internal reconstruction and External reconstruction (Merger and acquisition)?arrow_forwardUpper Company holds 60 percent of Lower Company’s voting During the preparation of consolidated financial statements for 20x4, the following eliminating entry was made: Retained earnings, January 1 10,000 Land 10,000 Which of the following statements is correct? A. Upper Company purchased land from Lower Company during B. Upper Company purchase land from Lower Company before January 1, C. Lower Company purchased land from Upper Company during D. Lower Company purchased land from Upper Company before January 1, 20x4.arrow_forward
- Pitcher Corporation purchased 60 percent of Softball Corporation's voting common stock on January 1, 20X1. On January 1, 20X5. Pitcher received $240,000 from Softball for a truck Pitcher had purchased on January 1, 20x2, for $300,000. 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 Note: If no entry is required for a transaction/event, select "No journal entry required in the first account field. view transaction list Consolidation Worksheet Entries < A Record the entry to eliminate the gain on the truck and to correct the asset's basis. B Note: Enter debits before credits Event 1 Record entry Accounts Clear entry Debit Credit view consolidation entriesarrow_forwardPam Corporation holds 70 percent ownership of Spray Enterprises. On December 31, 20X6, Spray paid Pam $31,000 for a truck that Pam had purchased for $36,000 on January 1, 20X2. The truck was considered to have a 10-year life from January 1, 20X2, and no residual value. Both companies depreciate equipment using the straight-line method. a. Prepare the worksheet consolidation entry or entries needed on December 31, 20X6, to remove the effects of the intercompany sale. Gain on Sale of truck Truck Accumulated depreciation Debit Credit b. Prepare the worksheet consolidation entry or entries needed on December 31, 20X7, to remove the effects of the intercompany sale. Investment in Spray Truck Accumulated depreciation Debit Credit Debit Credit Depreciation Expense Accumulated depreciationarrow_forwardAxel Corporation acquires 100% of the stock of Wheal Company on December 31, Year 4. The following information pertains to Wheal Company on the date of acquisition: CASE 5-1 Accounting Entries for Consolidation of Intercorporate Book Value Fair Value Investments $ 40,000 60,000 50,000 Property, plant, and equipment (net).... 100,000 $ 40,000 55,000 75,000 200,000 30,000 Cash Accounts receivable. Inventory.. Secret formula (patent)... Total assets.. $250,000 $400,000 $ 30,000 $ 30,000 22,000 Accounts payable Accrued employee pensions. Long-term debt .. Capital stock.. Other contributed capital Retained earnings... 20,000 40,000 100,000 25,000 38,000 35,000 Total liabilities and equity. $250,000 $ 90,000 Axel Corporation issues $110,000 par value ($350,000 market value on December 31, Year 4) of its own stock to the shareholders of Wheal Company to consummate the transaction, and Wheal Company becomes a wholly owned, consolidated subsidiary of Axel Corporation. Required: a. Prepare…arrow_forward