Sawhill Company, one of two wholly owned subsidiaries of Peasley Corporation, is in liquidation under Chapter 7 of the U.S. Bankruptcy Code. On October 31, 2006, the close of a fiscal year, Sawhill sold trade accounts receivable with a carrying amount of $50,000 to Shelton Company, the other wholly owned subsidiary of Peasley Corporation, for a gain of $10,000. Shelton debited the $10,000 to a deferred charge ledger account, which was to be amortized to expense in proportion to the amounts collected on the trade accounts receivable Shelton had acquired from Sawhill. The $10,000 gain was displayed in the consolidated income statement of Peasley Corporation and Shelton Company for the fiscal year ended October 31, 2006; Sawhill Company was not included in the consolidated financial statements on that date because it was in liquidation. Peasley used the equity method of accounting for its investments in both Shelton and Sawhill.

Instructions

Evaluate the accounting described above.