Question

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 $100,000 but had a $60,000 book value on that date) to Placid Lake for $80,000. 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:

Placid Lake and Scenic.

Worksheet entries to be made for a December 31, 2021 consolidation of these two companies to eliminate the impact of the intra-entity transfer is:

Debit Retained Earnings $4,000

Credit Equipment account $4,000

To eliminate the intra-entity gain on transfer of equipment.

Explanation:

a) Data and Calculations:

January 1, 2020

Scenic sale of equipment to Placid at $80,000

Original cost of equipment = $100,000

Book value of equipment at date of sale = $60,000

Remaining useful life of equipment at date of sale = 5 years

Scenic recorded a gain on sale of $20,000 ($80,000 - $60,000)

For each of the five years, it will eliminate the gain of $4,000 ($20,000/5).