Question

f-1. Assume that no intra-entity inventory or land sales occurred between Placid Lake and Scenic. Instead, on January 1, 2020, Scenic sold equipment (that originally cost $170,000 but had a $84,000 book value on that date) to Placid Lake for $118,000. At the time of sale, the equipment had a remaining useful life of five years. What worksheet entries are made for a December 31, 2021, consolidation of these two companies to eliminate the impact of the intra-entity transfer

Answer 1

Answer:

Journal 1

Debit : Other Income  $34,000

Credit : Equipment $34,000

Journal 2

Debit : Accumulated depreciation  $6,800

Credit : depreciation $6,800

Explanation:

Step 1 : Eliminate the Income resulting from sale and the additional value of equipment sitting in the buyer books

Income = Selling Price - Carrying Amount

where,

Carrying Amount = Cost - Accumulated depreciation

                             = $84,000

therefore,

Income = $118,000 - $84,000 = $34,000

Journal;

Debit : Other Income  $34,000

Credit : Equipment $34,000

Step 2 : Eliminate the unrealized profit as a result of additional asset value

unrealized profit = income ÷ remaining useful life

                            = $34,000 ÷ 5

                            = $6,800

Journal;

Debit : Accumulated depreciation  $6,800

Credit : depreciation $6,800