Dixon Ltd. owns 60% of the common shares of Kelly Co. At the beginning of 20X1, Kelly sold a machine with a book value of $350,000 to Dixon for $410,000. When Dixon prepares its consolidated financial statements for 20X1, it credits the machine account by $60,000. What account(s)should it debit in this journal entry?

Question

Quizplus · Accepted Answer

Since Dixon purchased the machine from Kelly for a price exceeding its book value, it resulted in Kelly recording a gain on the sale of the machine. As Dixon owns 60% of Kelly, 60% of the gain ($60,000) should be eliminated in the consolidation process. The remaining 40% of the gain should be allocated to the NCI in Kelly. Therefore, Dixon should debit Retained Earnings by $36,000 and NCI by $24,000.

Dixon Ltd Owns 60% of the Common Shares of Kelly Co