Patron Corporation holds 75 percent a
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:**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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