Question

Company A and Company B are related companies subject to consolidation. During the year, Company A sold office equipment to Company B for $50,000 on a note receivable / payable that had an original purchase price of $100,000 and accumulated depreciation at the time of sale of $10,000. The portion of the elimination entry at the time of consolidation to reverse out the gain or loss booked on this transaction would be:

Question 13 options:

	a) Debit Gain on Sale $40,000
	b) Credit Loss on Sale $40,000
	c) Credit Loss on Sale $10,000
	d) Debit Gain on Sale $10,000

Simpson, Inc. purchased 100% of the outstanding common stock of Green, Inc. on 1/1/20 for $700,000 in cash and stock. Simpson, Inc. accounts for the income of Green, Inc. using the Simple Equity Method, and during the year Green, Inc. reported Net Income of $90,000 and declared and paid dividends of $60,000. Assuming no other transaction between the two companies, the balance in “Investment in Green, Inc.” on the books of Simpson, Inc. on 12/31/20 will be:

Question 15 options:

	a) $640,000
	b) $0
	c) $790,000
	d) $730,000

Answer 1

Solution Initial entry at the time of sale of Equipment Particular Debit Credit Notes receivable A/C $ 50,000 Loss on sale of office equipment A/C $ 40,000 To Office equipment a/c $ 90,000 ($100,000-$10,000) Now, At the time of consolidation the elimination entry would include Credit loss on sale of office equipment amounting $40,000 Conclusion Hence the correct option is b) Credit loss on sale $40,000