Reverse Analysis and Consolidation Entry: Equipment Transfer — Upstream (100% ownership)

On 1/1/05 Sax Inc., a 100%-owned subsidiary of Pax Inc., sold Pax office equipment to which Pax assigned a 6-year life. If Sax had not sold the equipment, it would have reported this equipment in its 12/3 1/05 balance sheet at $70,000 for cost and $44,000 for accumulated depreciation. Also if Sax had not sold this equipment, it would have reported depreciation expense of $4,000 on it for all of 2005. The equipment’s carrying value on Pax’s books at 12/31/05 was $60,000.

1. Calculate the intercompany transfer price.

2. Calculate the intercompany gain or loss on the transfer.

3. Calculate Pax’s depreciation expense on this equipment for 2005.

4. Prepare the consolidation entry at the end of 2005 relating to this transfer.