Question

P Company owns 65% of the outstanding common stock of S Company. On September 30, 2011, S Company sold equipment to P Company for $300,000. The equipment cost S Company $1,000,000 and had accumulated depreciation of $500,000 on the date of the sale. The management of P Company estimated that the equipment had a remaining useful life of four years from September 30, 2011. S also estimated the same useful life left at time of sale of equip,ent.

To solve: Prepare all journal entries for P and S (from initial purchase of equipment from 3^rd parties, depreciation from initial purchase to sale between the related parties) on Sep. 30, 2011. In addition, prepare the w/p entry to eliminate the intercompany sale of equipment as of Sep. 30, 2011. Finally, prepare the adjustment to depreciation on Dec. 31, 2011.

Answer 1

Answer:

Journal Entries

Date	particulars	Debit ($)	Credit ($)
30/9/2011	Cash	$300,000
	Accumulated Depreciation - Equipment	$500,000
	Equipment		$1,000,000
	Profit on Sale of Equipment		$200,000
	(Sale of equipment to p company)

Journal Entries

Date	particulars	Debit ($)	Credit ($)
30-Sep	Equipment	$300,000
	Cash		$300,000
	(Purchase of equipment to S company)
31-Dec	Depreciation Expenses	$18,750
	Accumulated Depreciation ($300,000 x (3/12) x (1/4)		$18,750
	(Depreciation of Equipment)
31-Dec	Equipment	$300,000
	Gain on sale of equipment	$200,000
	Accumulated Depreciation		$500,000
	(Eliminate the gain on equipment)