On January 2, 2013, Plymouth Company sold a piece of equipment to its 80% subsidiary Shakopee Corporation.
The equipment originally cost Plymouth $50,000 and had accumulated depreciation of $20,000.
Plymouth sold it to Shakopee for $35,000. It has a remaining useful life of 5 years.
Plymouth uses the cost method to record its investment in Shakopee.
Using the information from Exercise 1 above, assume that Shakopee sells the equipment for $20,000 to a third party after it has owned the equipment for three years.
Assume the asset has been depreciated for the year.
1. Calculate S's gain and the consolidated gain or loss from the sale.
2. Prepare the appropriate eliminating entry as of December 31, 2015.
When an entity obtains control over its subsidiary, they are no longer allowed to have buy and sell transactions with each other. Elimination of these transactions are needed in case they have entered into transactions with each other.
Answer and Explanation:
1. The unrealized gain is 5,000
|Gain on Sale||5,000|
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from CFP Certification Exam Study Guide - Certified Financial PlannerChapter 8 / Lesson 1