Answered: Patron Corporation holds 75 percent a | bartleby

FINANCIAL ACCOUNTING

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

**Intercorporate Transfer and Consolidation of Financial Records**

*Machine Purchase and Sale Transaction:*

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

| Account | Debit | Credit |
|----------------------------|----------|----------|
| Cash | 45,000 | |
| Accumulated Depreciation | 28,000 | |
| Machine | | 70,000 |
| Gain on Sale of Equipment | | 3,000 |

*Corporate Ownership & Income Reporting:*

- Patron Corporation holds 75% of Server's voting shares.
- Server reported a net income of $50,000.
- Patron reported income from its 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.

*Consolidation Entry for 20X9:*

Based on the preceding information, the consolidation entry will be adjusted by one of the following options:

- Debited for $25,000.
- Debited for $1,000.
- Credited for $45,000.
- Debited for $15,000.

**Note:** The correct option needs to be determined based on the specific accounting rules and practices for such intercompany transactions.

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