Question: Perform the accounting required for the elimination of each independent intercompany transaction:
1. Prepare the book calculations
2. Perform the required journal entries
Assume that Parent Company decides to sell $5,000 of Inventory to Sub for $7,000 cash. Show the sale and the subsequent elimination entries by Parent Company
| Parent Company Balance Sheet |
| Assets, Liabilities & Equities |
Book Value |
| Cash |
$1,500,000 |
| AR |
$10,000 |
| Inventory |
$200,000 |
| Land |
$640,000 |
| Equipment |
$400,000 |
| Accumulated Depreciation |
-$150,000 |
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| Patent |
$0 |
| Total Assets |
$2,600,000 |
| AP |
$100,000 |
| Common Stock |
$450,000 |
| Additional Paid In Capital |
$600,000 |
| Retained Earnings |
$1,450,000 |
| Total Liabilities & Equity |
$2,600,000 |
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| Sub Company Balance Sheet |
| Assets, Liabilities & Equities |
Book Value |
| Cash |
$35,000 |
| AR |
$10,000 |
| Inventory |
$65,000 |
| Land |
$40,000 |
| PP&E |
$400,000 |
| Accumulated Depreciation |
-$150,000 |
| Patent |
$0 |
| Total Assets |
$400,000 |
| AP |
$100,000 |
| Common Stock |
$100,000 |
| Additional Paid In Capital |
$50,000 |
| Retained Earnings |
$150,000 |
| Total Liabilities & Equity |
$400,000 |
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| Assume that book Value = Fair Value |
| Sale by Parent |
| Account |
DR |
CR |
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| Acquisition by Sub |
| Account |
DR |
CR |
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| Elimination Entries |
| Account |
DR |
CR |