Answer:
a) JOURNAL ENTRIES
Debit Retained Earnings $5,850,000 , Debit Accumulated depreciation $650,000 , Credit Building $6,500,000.
Debit Depreciation $325,000 Credit Accumulated depreciation $325000.
( this is the depreciation for the year on the profit made on the sale by the subsidiary)
b) The balance on the trial balance of Pearl for the asset will be a Carrying balance ( $8,000,000 - [(8000000/20)*3] = $8000000-1200000 =<u>$6,800,000</u>
profit on sale = selling price - carrying value
=$8,000,000 - ($10,000,000- $8,500,000)
= $8,000,000 - $1,500,000
= $6,500,000
depreciation on profit = $6500000/20 = 325,000
accum dep = (325000*2yrs)= $650,000
Explanation:
BELOW IS A COMPLETE QUESTION
Upstream Intercompany Building Transactions
Shiek Shoes sold an administrative building to its parent, Pearl Industries, on January 1, 2018, for $8,000,000. At the time of sale, the building was carried on Shiek’s books at original cost of $10,000,000, with $8,500,000 of accumulated depreciation. At the date of sale, the building had a remaining life of 20 years, and straight-line depreciation is appropriate. It is now December 31, 2020, the end of the accounting year, and you are preparing the working paper to consolidate the trial balances of Pearl and Shiek. Pearl still owns the building.
Required
a. Prepare the required eliminating entries for this intercompany building sale for the December 31, 2020, consolidation working paper.
Enter numerical answers using all zeros (do not abbreviate answers to millions or thousands).
b. What balances does Pearl report in its own trial balance for this building at December 31, 2020?
