Answer:
Journal 1
At the beginning of the year
Debit : Equipment $380,000
Credit : Retained Earnings ($380,000 - $95,000) $285,000
Credit ; Accumulated Depreciation $95,000
Journal 2
During the year :
Debit : Depreciation $95,000
Credit : Accumulated depreciation $95,000
Explanation:
The sale of equipment to Prince Company is an intragroup transaction and must be eliminated from Prince Company Consolidated Financial Statements as follows :
Carrying Amount before sale :
Carrying Amount = Cost - Accumulated Depreciation
= $1,280,000 - ($1,280,000 ÷ 8)
= $1,120,000
Unrealized gain / loss =Selling Price - Carrying Amount
= $740,000 - $1,120,000
= $380,000 loss
<em>Eliminate this loss on sale of equipment </em>
2017
Unrealized depreciation = $380,000 ÷ 4
= $95,000
<em>Eliminate this depreciation charge deferred at the beginning of 2018</em>
2018
Unrealized depreciation = $380,000 ÷ 4
= $95,000
<em>Eliminate this depreciation charge deferred during 2018</em>
