Paper Corporation owns 75 percent of Scissor Company's stock.On July 1,20X8,Paper sold a building to Scissor for $33,000.Paper had purchased this building on January 1,20X6,for $36,000.The building's original eight-year estimated total economic life remains unchanged.Both companies use straight-line depreciation.The building's residual value is considered negligible.
-Based on the information provided,in the preparation of the 20X8 consolidated financial statements,building will be ________ in the consolidating entries.

Question

Quizplus · Accepted Answer

Paper Corporation sold the building to Scissor Company for $33,000, which is less than its original cost of $36,000. Therefore, Paper Corporation will record a loss on the sale of the building. To eliminate the effects of the intercompany sale, the building will be eliminated by debiting it for the difference between its original cost and the sale price, which is $3,000 ($36,000 - $33,000). Therefore, the building will be debited for $3,000 in the consolidating entries.

Paper Corporation Owns 75 Percent of Scissor Company's Stock