Question

Any difference between implied and book value relates to goodwill. After the acquisition, during 2020, Pioneer sold $100,000 of land to Shipley for cash. The cost of the land was $60,000 at the date of the transfer. Also at January 2, 2020, Pioneer transferred equipment to Shipley for $18,000 cash. The equipment originally cost $20,000 and has a book value of $15,000 (three-year remaining useful life). During 2021, Shipley sold the land to a third-party for $140,000. The equipment continued to be used by Shipley.

Instructions:

A. Prepare the 2020 journal entries only relating to land and equipment transactions.

B. Prepare the 2020 consolidation worksheet entries only relating to the land and equipment transactions.

C. Prepare the 2021 journal entries only relating to land sale and equipment transactions.

D. Prepare the 2021 consolidation worksheet entries only relating to the land and equipment transactions.

Answer 1

Answer and Explanation:

According to the scenario, journal entries of given data are as follow:-

(a). Journal Entries in A/c(2020)

2020 Cash a/c Dr. 100000

To Land A/c 60000

To profit on Sale of Land A/c 40000

( Being sale of land is recorded )

2/1/20 Cash A/c Dr. 18,000

To Equipment A/c 15,000

To Profit on Sale of Equipment A/c 3,000

( Being sale of an equipment is recorded)

b) Consolidation Worksheet Entries

2020 Profit on Sale of Land a/c Dr. 40,000

To Land A/c 40,000

( Being profit on sale of land is recorded)

2020 Profit on Sale of Equipment A/c Dr. 3,000

Equipment A/c Dr. 2,000

To Accumulated Depreciation A/c 5000

( Being profit on sale of equipment is recorded)

2020 Investment in Shipley company A/c Dr. 1,000

To Income from Shipley Company A/c 1,000

( Being investment in shipley is recorded)

c). Journal Entries(2021)

2021 Cash A/c Dr. 1,40,000

To Land A/c 1,00,000

To Profit on Sale of Land A/c 40,000

( Being sale of land is recorded)

2021 Depreciation A/c Dr. 6,000

To Accumulated Depreciation A/c 6,000

( Being depreciation is recorded)

d). Consolidation Worksheet Entries(2021)

2021 Income from Shipley Company A/c Dr. 40,000

To Profit on Sale of Land A/c 40,000

( Being income in Shipley is recorded)

2021 Investment in Shipley Company A/c Dr. 1,000

To Income from Shipley Company A/c 1,000

( Being investment in Shipley is recorded)