Advanced Accounting 11th Edition by Paul Fischer,William Tayler, Rita Cheng

Exercise 31

Completed-contract method. Janis Company contracted with its 80%-owned subsidiary, Essuman Equipment Company, for the construction of two stamping machines. The first machine was completed and put into operation on July 1, 2011. It cost Essuman $60,000 and has a 5-year estimated life with no salvage value. The contract price was $75,000. The machine is being depreciated on a straight-line basis. The second machine, with an estimated total cost of $90,000 and a contract price of $120,000, was 80% complete on December 31, 2011. To date, costs on the second contract total $72,000. By the statement date, Janis had completely paid for the first machine and still owed $3,000 of the $60,000 billed to date on the second machine. Essuman uses the completed-contract method to account for its long-term construction contracts.
1. Prepare the necessary eliminations for the consolidated worksheet on December 31, 2011.
2. What are the effects of these contracts on the income distribution schedules?