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Patterson Company owns 80% of the outstanding common stock of Stevens Company. On June 30, 2013, landcosting $500,000 is sold by one affiliate to the other for $800,000.Required:Prepare in general journal form the workpaper entries necessary because of the intercompany sale of land in theconsolidated financial statements workpaper for the year ended December 31, 2014, assuming that:A. Patterson Company purchased the land from Stevens Company.B. Stevens Company purchased the land from Patterson Company.

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Answer:                              

1. Sale of land by Stevens (subsidiary) - Upstream transaction

                                    General Journal

Date                Particulars                    Debit          Credit

31-Dec-14    Retained earnings A/c   $240,000

                    (300,000*80%)

                  Non controlling interest   $60,000

                   (300,000*20%)

                         To, Land                                       $300,000  

                          (Being profit on sale eliminated)

2. Sale by Patterson (holding) - Downstream transaction

Date               Particulars                     Debit          Credit

31-Dec-14     Retained earnings a/c  $300,000  

                       To, Land                                          $300,000

(Being profit on sale earlier recognized by holding eliminated)

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