Question

PROBLEM 7-3 P Company Entries and Determining Gain or Loss on Sale LO 6 LO 9 On January 1, 2020, P Company purchased equipment from its 80% owned subsidiary for $600,000. The carrying value of the equipment on the books of S Company was $450,000. The equipment had a remaining useful life of six years on January 1, 2020. On January 1, 2021, P Company sold the equipment to an outside party for $550,000. Required: A. Prepare in general journal form the entries necessary in 2020 and 2021 on the books of P Company to account for the purchase and sale of the equipment. B. Determine the consolidated gain or loss on the sale of the equipment and prepare in general journal form the entry necessary on the December 31, 2021, consolidated statements workpaper to properly reflect this gain or loss.

Answer 1

Please find below table useful to compute desired results: -

Cash General Journal 2 Date Account Titles and Explanation Debit Credit Equipment 600000 =C3 (to record purchase of equipment) Depreciation Expense =C3/6 Accumulated Depreciation =C6 (to record depreciation) Cash 550000 Accumulated Depreciation =D7 Equipment =C3 Gain on sale of Equipment =C9+C10-D11 (to record the sale of the equipment) Retained Earnings - Company P =D16*0.8 Non-controlling Interest =D16*0.2 Gain on sale of Equipment =C9-450000-D12 17 (to record the consolidated gain or loss on the sale of the equipment)

End results would be as follows: -

2 General Journal Date Account Titles and Explanation Debit Credit Equipment 600,000 Cash 600,000 (to record purchase of equipment) Depreciation Expense 100,000 Accumulated Depreciation 100,000 (to record depreciation) Cash 550.000 Accumulated Depreciation 100,000 Equipment 600,000 Gain on sale of Equipment 50,000 (to record the sale of the equipment) Retained Earnings - Company P 40,000 Non-controlling Interest 10,000 Gain on sale of Equipment 50,000 (to record the consolidated gain or loss on the sale of the equipment)