Question

A- Intel Inc. is a 70% owned subsidairy of Dell corporation, which was acquired at book value several years ago. Separate compay income statements for 2015 is shown below:

	Dell	Intel
Sales	15,000,000	6,400,000
Gain on sale of machine	-	400,000
Total Income	15,000,000	6,800,000
Cost of goods sold	(10,000,000)	(4,000,000)
Operating expenses	(2,000,000)	(1,300,000)
Total expense	(12,000,000)	(5,300,000)
Net income	3,000,000	1,500,000

On January 1, 2015 Intel sold a machine to Dell for $900,000 , the cost of machine was $700,000 and accumulated depreciation $200,000 and remaining useful life 10 years.                                            (22 Marks)                                                                    

Required:                                 

1. Record journal entries prepared by the parent during 2015                                                 ( 6 Marks)
2. Prepare a a working paper for consolidated income statement for 2015 and the elimination entires required                                                                                                                                (16 Marks)

Answer 1

Consolidated Income Statement
Particulars	Amount in $
Sell	21400000
Total Income	21400000
Cost of goods sold	14000000
Operating Expenses	3340000	(WN 2)
Total Expenses	17340000
Net Income	4060000
WN 1:
Since the gain on sale of machine is intercompany transaction hence we will not take it in consolidated income statement.
WN 2
Operating Expenses:
Original Operating expenses	3300000
Add: Depreciation claimed on sell value of machine by Dell company	90000
(900000/ 10 years)
Less: Depreciation to be claimed on WDV value	50000
(700000-200000) /10 years
	3340000
Journal Entries in the books of Dell :
Machine A/c Dr.	40000
To Depreciation		40000
(being depreciation correctly charged now)