On January 1, 20X7, Pillow Corporation sold to Sheet Corporation equipment it had purchased for $150,000 and used for eight years. Pillow recorded a gain of $14,000 on the sale. The equipment has a total useful life of 15 years and is depreciated on a straight-line basis. Pillow holds 70 percent of Sheet’s voting common shares.

Required

a. Give the journal entry made by Pillow on January 1, 20X7, to record the sale of equipment.

b. Give the journal entries recorded by Sheet during 20X7 to record the purchase of equipment and year-end depreciation expense.

c. Give the consolidation entry or entries related to the intercompany sale of equipment needed at December 31, 20X7, to prepare a full set of consolidated financial statements.

d. Give the consolidation entry or entries related to the equipment required at January 1, 20X8, to prepare a consolidated balance sheet only.