Question

Pannier Company is the parent company that owns an 80% interest in Jodestar Company. The interest was acquired at book value, and the simple equity method is used to record the ownership interest. The trial balances of the two companies on December 31, 2016, were as follows:
As the year ended, Pannier was planning to transfer a major piece of equipment to Jodestar. The equipment was just purchased by Pannier and is included in its inventory account. The equipment cost Pannier $100,000 and would be transferred to Jodestar for $125,000. There are two options as follows:
- Sell the equipment to Jodestar for $125,000 and finance it with a 5-year, 10% interest installment note.
- Lease the equipment to Jodestar on a 5-year lease requiring payments of $29,977 in advance.
Required
1. Make the journal entries for both companies if the intercompany sale was consummated on
December 31.
2. Prepare a consolidated income statement and balance sheet for the company for 2016.
3. Make the journal entries for both companies if the intercompany lease was executed on
December 31.
4. If the lease were used, how would the consolidated statements differ from those in part (2)?


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  • CreatedApril 13, 2015
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