In consolidation of Perpetual Industries and Sand Hill Company at December 31,2020, you assemble the following data related to unconfirmed intercompany profits:

	January 1,2020	December 31,2020
Land	4,000,000	4,000,000
Merchandise Inventory	2,400,000	2,200,000
Equipment	1,200,000	1,050,000

The equipment is carried on the purchasing affiliate's books at a cost of $6,000,000 and accumulated depreciation of $1,800,000(straight-line, no salvage value) at December 31,2020. Accumulated depreciation at the date of intercompany sale was $1,000,000; the original intercompany gain was $1,500,000. Intercompany merchandise sales for 2020 between Perpetual and Sand Hill were $40,000,000.

Required:

a. Assume that all of the above unconfirmed intercompany profits arose from upstream sales. Prepare the eliminating entries related to those intercompany transactions when consolidating the financial statements of Perpetual Industries and Sand Hill Company at December31, 2020.

b. Repeat part a assuming that all of the above uncontrolled intercompany profits arose from down-stream sales.

Answer rating: 100% (QA)

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