| Course | ACC-6020 Advanced Accounting |
|---|---|
| Module | Module 5 |
| Paper type | Written Assignment 5: intercompany sale of property and equipment, downstream and upstream |
| Length | About 747 words, 5 pages |
| Format | APA 7 student paper |
| School | Thomas Edison State University |
| Program | M.S. in Management in Accounting |
| Updated | October 2026 |
Free sample paper for ACC 6020 Module 5
A $60,000 Gain the Group Never Earned: Eliminating an Upstream Equipment Sale From Lakeland to Ridgewood
Student Name
M.S. in Management in Accounting, Thomas Edison State University
ACC-6020: Advanced Accounting
Mentor Name
Month Day, Year
A $60,000 Gain the Group Never Earned: Eliminating an Upstream Equipment Sale From Lakeland to Ridgewood
Introduction
A sale of equipment between members of a group creates a gain on the seller's books and a higher cost basis on the buyer's books, yet the group still owns the same asset. Consolidated statements must present the asset as if the sale never happened: at its original cost, with original accumulated depreciation, and depreciated on the group's basis (Jeter & Chaney, 2011). The gain is recognized for consolidated purposes only as the asset is used up, through lower depreciation over its remaining life.
The Transaction
On January 1, 2027, Lakeland sold a sensor calibration rig to Ridgewood for $300,000. Lakeland had bought it for $400,000 and recorded $160,000 of accumulated depreciation, so its carrying amount was $240,000 and Lakeland recorded a $60,000 gain. The rig has five years of remaining life and no residual value. Ridgewood depreciates its $300,000 cost at $60,000 a year; on the group's basis, $240,000 over five years, depreciation would be $48,000.
From the group's point of view, nothing happened except a transfer between locations. The rig's original $400,000 cost and its depreciation history must therefore survive in the consolidated statements, which is what the worksheet entries restore.
| Basis | Cost | Accumulated depreciation | Annual depreciation |
|---|---|---|---|
| Ridgewood's books after the purchase | $300,000 | None at purchase | $60,000 |
| Consolidated, as if no sale occurred | 400,000 | 160,000 at purchase | 48,000 |
| Difference | 100,000 | 160,000 | 12,000 |
Eliminations for 2027
After these entries the rig appears at $400,000 less $172,000 of accumulated depreciation, a carrying amount of $192,000, exactly what it would be had Lakeland kept it and depreciated it at $48,000 a year. The group's 2027 income falls by the $60,000 gain but rises by the $12,000 of depreciation removed, a net reduction of $48,000.
Two entries do the work: one removes the $60,000 gain and restores the original cost and accumulated depreciation, and the other reverses the $12,000 of extra depreciation Ridgewood recorded on its higher basis.
| Entry | Debit | Credit |
|---|---|---|
| Remove the gain and restore original cost and depreciation | Gain on sale of equipment 60,000; Equipment 100,000 | Accumulated depreciation 160,000 |
| Remove excess depreciation for 2027 | Accumulated depreciation 12,000 | Depreciation expense 12,000 |
The Noncontrolling Interest's Share
Lakeland was the seller, so the gain sits in its books, and deferring it shrinks Lakeland's profit before the split between owners. The net effect on 2027 income, $48,000, reduces the noncontrolling interest's share by 20%, or $9,600. The noncontrolling interest's share of the deferred gain is then released over the next four years at $2,400 a year, 20% of the $12,000 depreciation adjustment, as the rig is used.
Eliminations for 2028
At the start of 2028, $48,000 of the gain remains unrealized from the group's view. The entry restores it against beginning retained earnings and the noncontrolling interest, rather than against the gain account, which belonged to 2027.
The pattern repeats each year, with the unrealized balance falling by $12,000 until it reaches zero at the end of the rig's life in 2031.
| Entry, 2028 | Debit | Credit |
|---|---|---|
| Restore the unrealized gain at the start of the year | Retained earnings, Lakeland 38,400; Noncontrolling interest 9,600; Equipment 100,000 | Accumulated depreciation 148,000 |
| Remove excess depreciation for 2028 | Accumulated depreciation 12,000 | Depreciation expense 12,000 |
If Ridgewood Had Been the Seller
In a downstream sale, the parent records the gain, so the deferral would reduce only the controlling interest's income, and the noncontrolling interest's share of Lakeland's income would be unaffected. The worksheet entries themselves would be the same; only the attribution changes. This difference is why the textbook stresses identifying the seller before computing the noncontrolling interest.
Why It Matters
Sales of assets within a group can be timed to produce gains when earnings fall short. Herrmann et al. (2003) found that Japanese managers used sales of fixed assets and marketable securities to raise earnings when operating income was below forecasts. Consolidation removes the effect of such sales within a group, so the gain appears only as the asset is depreciated, not when management chooses to sell it to an affiliate (Financial Accounting Standards Board [FASB], 2007).
If Ridgewood sold the rig to an outside buyer before 2031, the unrealized gain still on the worksheet would be recognized in that year, because the group's gain on the external sale is measured from Lakeland's original cost basis. Auditors therefore check that consolidated accumulated depreciation has been restored and that the remaining deferral is tracked until the asset leaves the group.
References
Financial Accounting Standards Board. (2007). Noncontrolling interests in consolidated financial statements (Statement of Financial Accounting Standards No. 160).
Herrmann, D., Inoue, T., & Thomas, W. B. (2003). The sale of assets to manage earnings in Japan. Journal of Accounting Research, 41(1), 89-108. https://doi.org/10.1111/1475-679X.00097
Jeter, D. C., & Chaney, P. K. (2011). Advanced accounting (5th ed.). John Wiley & Sons.
Reading the ACC 6020 Module 5 assignment instructions
Equipment and land sold inside the group, upstream and downstream, are the subject of Module 5's written assignment. Expect to eliminate gains or losses on intercompany asset sales, restore the original cost and accumulated depreciation, adjust depreciation each year over the remaining life, prepare the entries in later years against beginning retained earnings and allocate the effects to the noncontrolling interest for upstream sales. Some problems involve land, which is not depreciated, so the gain stays deferred until the land leaves the group. All balances here are invented; they continue the invented parent and subsidiary from earlier assignments. Some versions use land instead, which is never depreciated.
Inside the ACC 6020 Module 5 example
The introduction explains why the group must present the asset as if no sale happened. The transaction is described with both bases, and a table compares cost, accumulated depreciation and annual depreciation. A table shows the entries for the year of the sale, and a check confirms the group carrying amount equals what it would be had no sale occurred. A section allocates the upstream effect to the noncontrolling interest and shows its release over time. The 2028 entries show how the deferral moves to beginning retained earnings, a short section contrasts a downstream sale and the closing paragraph connects the rule to research on gains from asset sales.
ACC 6020 Module 5 rubric: what earns full marks
Asset transfer problems add their share to the written half of the course grade. For intercompany asset sales, mentors check that the gain is eliminated in the year of sale, that original cost and accumulated depreciation are restored, that excess depreciation is removed each year, that later-year entries adjust opening retained earnings, shared with the noncontrolling interest when the sale ran upstream, and that consolidated income and the noncontrolling interest's share are computed correctly. A check of the consolidated carrying amount against the no-sale amount shows mastery and earns credit. A schedule of the excess depreciation removed each year, alongside the declining unrealized gain, shows the reversal clearly. Showing the noncontrolling interest's share of the deferred gain for the upstream sale earns credit.
Common ACC 6020 Module 5 mistakes, and how to avoid them
Students often eliminate the gain but forget to restore the original cost and accumulated depreciation, leaving the asset at the buyer's cost. Others remove the gain in later years from the gain account rather than from beginning retained earnings. Lay out the buyer's basis and the group's basis side by side before writing any entry. For upstream sales, allocate the deferral to the noncontrolling interest. If the asset is land, no depreciation adjustment applies. Keep a line for the deferred gain each year until the machine is used up or sold outside, since the entry gets smaller annually. A free first sample of your own ACC-6020 Module 5 problems is available on request.
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ACC 6020 Module 5 questions, answered
Where can I find a free ACC 6020 Module 5 sample paper?
Lakeland's sale of a calibration rig to Ridgewood is worked above: gain elimination, restored cost and depreciation, excess depreciation, the noncontrolling interest's share and the next year's entries.
How is a gain on an intercompany equipment sale eliminated?
The worksheet strips out the gain, puts the asset back at its first cost and old accumulated depreciation and, each year, removes the extra depreciation the buyer's higher cost creates.
When is the gain on an intercompany equipment sale recognized in consolidation?
Gradually, through reduced depreciation over the asset's remaining life, or when the asset is sold to an outsider.
How does an upstream equipment sale affect the noncontrolling interest?
The deferred gain reduces the subsidiary's income before it is divided, so the noncontrolling interest bears its percentage of the deferral.
What happens with an intercompany sale of land?
Land is not depreciated, so the gain simply waits on the worksheet until the land is sold to an outsider.