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30 May, 11:39

Pam 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 15-year life from January 1, 20X2, and no residual value. Both companies depreciate equipment using the straight-line method.

Prepare the worksheet consolidation entry or entries needed on December 31, 20X6, to remove the effects of the intercompany sale.

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  1. 30 May, 12:29
    0
    the worksheet consolidation entry or entries needed on December 31, 20X6 would be the following:

    Debit Credit

    Gain on Sale $7,000

    truck $5,000

    Accumulated Depreciation $12,000

    Explanation:

    In order to prepare the worksheet consolidation entry or entries needed on December 31, 20X6, to remove the effects of the intercompany sale we would have to make first the following calculations:

    Gain on Sale=$31,000 - ($36,000 - (($36,000/15) * 5))

    =$7,000

    Accumulated Depreciation = ($36,000/15) * 5

    =$12,000

    Hence, truck=$12,000-$7,000

    =$5,000

    Therefore, the worksheet consolidation entry or entries needed on December 31, 20X6 would be the following:

    Debit Credit

    Gain on Sale $7,000

    truck $5,000

    Accumulated Depreciation $12,000
  2. 30 May, 13:54
    0
    truck 5,000 debit

    gain on sale 7,000 debit

    accumulated depreciation 12,000 debit

    Explanation:

    The company will have to adjust to re-enter the truck into the accounting like ifthe sale did not occur.

    Thus, as the truck enter Pam for 36,000 and his subsidiary by 31,000

    the 5,000 difference must be reversed.

    we also have to redo the accumulated depreciation:

    36,000 dollar / 15 years = 2,400

    from 2002 to 2006 we have 12,000 accumualted depreciation

    Last, we have to remove the sain recognized in this gain which is the difference betwene the depreication write-off and the truck price variation.
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