On January 1, 2024, Pueblo Corporation purchased a 75% interest in Sanchez Company for $900,000. A summary of Sanchez Company’s balance sheet at date of purchase follows:

The equipment had an original life of 15 years and remaining useful life of 10 years. During 2024 Pueblo Corporation reported income of $237,000 and paid dividends of $150,000. Sanchez Company reported net income of $123,000 and paid dividends of $120,000. Pueblo uses the complete equity method to account for its investment in Sanchez.

Required:
A. Prepare the elimination entries for the consolidated financial statements workpaper on December 31, 2024. Accumulated depreciation is presented on a separate row in the workpaper and in the consolidated financial statements.
B. Assume that Sanchez Company disposed of all its equipment on January 1, 2026, for $450,000.
1. What amount of gain (loss) will Sanchez Company report?
2. What is the consolidated gain (loss)?
3. Prepare the workpaper entry necessary to allocate the amount of the difference between book value and the value implied by the purchase price that was originally allocated to the equipment that has now been sold to outsiders.
4. What workpaper entry will be necessary to allocate this difference between book value and the value implied by the purchase price in future years?

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Equipment Accumulated depreciation Equipment (net) Other assets Liabilities Common stock Retained earnings Book Value $720,000 (240,000) 480,000 450,000 $930,000 $255,000 300,000 375,000 $930,000 Fair Value $660,000 450,000 $255,000