Question

Bowen Corporation owns 70 percent of Roan Corporation’s voting common stock. On March 12, 20X2, Roan sold land it had purchased for $140,000 to Bowen for$185,000. Bowen plans to build a new warehouse on the property in 20X3.

a. Give the worksheet consolidation entries to remove the effects of the intercompany sale of land in preparing the consolidated financial statements at December 31, 20X2 and 20X3.
b. Give the worksheet consolidation entries needed at December 31, 20X3 and 20X4, if Bowen had initially purchased the land for $150,000 and sold it to Roan on March 12, 20X2, for$180,000.

Answer 1

To remove the effects of the intercompany sale of land in preparing the consolidated financial statements, consolidation entries need to be made. For the first scenario, certain accounts for both Roan Corporation and Bowen Corporation need to be adjusted. For the second scenario, different entries based on the new purchase price of the land are required.

Step-by-step explanation:

a. To remove the effects of the intercompany sale of land in preparing the consolidated financial statements at December 31, 20X2, you would need to make the following consolidation entries:

1. Decrease Roan Corporation's Land account by $140,000
2. Decrease Roan Corporation's Gain on Sale of Land account by $45,000
3. Increase Roan Corporation's Accumulated Depreciation account by $40,000
4. Increase Bowen Corporation's Land account by $140,000
5. Increase Bowen Corporation's Investment in Roan Corporation account by $45,000

b. To prepare the consolidation entries at December 31, 20X3 and 20X4, if Bowen had initially purchased the land for $150,000 and sold it to Roan on March 12, 20X2, for $180,000, the entries would be as follows:

1. Decrease Roan Corporation's Land account by $180,000
2. Decrease Roan Corporation's Gain on Sale of Land account by $5,000
3. Increase Roan Corporation's Accumulated Depreciation account by $40,000
4. Increase Bowen Corporation's Land account by $180,000
5. Increase Bowen Corporation's Investment in Roan Corporation account by $45,000