The following transactions took place between Parkhurst Corporation and its wholly owned subsidiary, Sandland Company, which file separate income tax returns, during the fiscal year ended March 31, 2006:
1. Parkhurst sold to Sandland at a 30% gross profit rate merchandise with a total sale price of $200,000. Sandland’s March 31, 2006, inventories included $40,000 (billed prices) of the merchandise obtained from Parkhurst—a $20,000 increase from the related April 1, 2005, inventories amount. Both Parkhurst and Sandland use the perpetual inventory system.
2. On April 1, 2005, Sandland sold to Parkhurst for $50,000 a machine with a carrying amount of $30,000 on that date. The economic life of the machine to Parkhurst was five years, with no residual value. Parkhurst uses the straight-line method of depreciation for all plant assets.
3. On February 28, 2006, Parkhurst sold land for a plant site to Sandland for $480,000. The land had a carrying amount to Parkhurst of $360,000.
4. On March 31, 2006, following Sandland’s payment of interest to bondholders, Parkhurst acquired in the open market for $487,537, a 16% yield, 60% of Sandland’s 12%, tenyear bonds dated March 31, 2005. The bonds had been issued to the public by Sandland on March 31, 2005, to yield 14%. On March 31, 2006, after the payment of interest, Sandland’s accounting records included the following ledger account balances relative to the bonds:
Both Parkhurst and Sandland use the interest method of amortization or accumulation of bond discount. The income tax rate for both affiliated companies, which file separate income tax returns, is 40%.
Prepare working paper eliminations (in journal entry format), including income taxes allocation, for Parkhurst Corporation and subsidiary on March 31, 2006. Round all amounts to the nearest dollar.
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