Pomeroy Corporation owns an 80% interest in Sherer Company and a 90% interest in Tampa Company. On January 2, 2014, Tampa Company sold equipment with a book value of $548,400 to Sherer Company for $763,800. This equipment has a remaining useful life of three years. Sherer Company reported $105,800 and Tampa Company reported $161,100 in net income (including sales to affiliates) in 2014. Required:
Prepare the 2014 and 2015 consolidated statements workpaper entries to eliminate the effects of this sale of equipment.

Please see consolidated statement below

Explanation:

2014 Gain on sale of equipment A/c Dr $214,600

To equipment A/c Cr $214,000

(To eliminate equipment)

Accumulated depreciation A/c Dr $71,800

To depreciation expense A/c Cr $71,800

(To eliminate depreciation on equipment)

2015. Retained earnings beginnings- Pomeroy Company Dr $193,140

($214,600 × 90%)

Non controlling interest A/c Dr $21,460

($214,600 × 10%)

To equipment A/c Cr $214,600

(To eliminate equipment)

Accumulated depreciation A/c

Dr $143,600

To depreciation expenses A/c

Cr $71,800

To retained earnings beginning - Pomeroy A/c. Cr $64,620

($71,800 × 90%)

To non interest controlling A/c.

Cr $7,180

($71,800 × 10%)

(To eliminate depreciation)

Workings

Equipment cost = $548,400

Proceed from sale = $763,800

Gain/loss on sale of equipment = Equipment cost - Proceed from sale of equipment

= $548,400 - $763,000

= $214,600 Gain

This equipment has remaining useful life of 3 years

Depreciation on cost = $548,400 ÷ 3 years

=$182,800

Depreciation on sale amount = $763,800 ÷ 3 years

= $254,600

Excess depreciation = Difference of cost and sale of depreciation

= $182,800 - $254,600

= $71,800 Excess depreciation

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