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Case 5-3: Alternative Ways to Transfer Asset to Subsidiary
The Case has four parts to complete. Part 1is to do journal entries to record the sale of the equipment in the books of Pannier and purchase of the equipment in the books of Jodestar. These are the same journal entries you did in your Introductory accounting class. The accounts to use are Sales, Notes Receivable, Cost of Goods Sold, and Inventory. There are three entries (note that a debit and a credit is considered one entry); two in the books of Pannier and one in the books of Jodestar.
Part 2 is to prepare a consolidated Income Statement and a consolidated balance sheet. Note that the sale or purchase of the equipment is not included in the trial balances. Use the templates provided. Check figures for net income provided and the balance sheet total are provided. Note that the ownership of Pannier of Jodestar is 80%.
Part 3 is to complete journal entries assuming a sales-type lease. Accounts to use are Minimum Lease Payments Receivable, Inventory, Cash, Unearned Interest Income, Sales-Type profit on Lease, Asset Under Capital Lease, and Obligation Under Capital Lease. There is one compound entry of five accounts (two debits and three credits) in the books of Pannier and one entry of three accounts (one debit and two credits) in the books of Jodestar. All these accounts and entries are illustrated in the book.
Part 4 is This is to simply indicate whether or not there will be a difference in the consolidated
statements assuming a sales-type capital lease instead of intercompany purchase/sale of