Question

On January 1, 20X7, Server Company purchased a machine with an expected economic life of five years. On January 1, 20X9, Server sold the machine to Patron Corporation and recorded the following entry:

Cash 45,000
Accumulated Depreciation 28,000
Machine 70,000
Gain on Sale of Equipment 3,000
Patron Corporation holds 75 percent of Server's voting shares. Server reported net income of $50,000, and Patron reported income from its own operations of $100,000 for 20X9. There is no change in the estimated economic life of the equipment as a result of the intercorporate transfer. Based on the preceding information, in the preparation of the 20X9 consolidated income statement, machine will be what amount and will it be debited or credited in the consolidation entry?

Answer 1

Consolidation entry is given below

Step-by-step explanation:

Consolidated Entry DEBIT CREDIT

Machinery(w) $42,000

Loss on purchase $3,000

Cash $45,000

NOTE: We will record a loss in consolidation entry because the consideration paid is greater than the machinery's carrying value.

Working

Carrying value = Net book value - Accumulated Depreciation

Carrying value = $70,000 - $28,000

Carrying value = $42,000