Facts: Olinto Corporation (subsidiary) sold equipment on January 1, Year 1 to Gearty Corporation (parent) for $100,000. The equipment had a net book value of $70,000 (cost of $90,000 and accumulated depreciation of $20,000), and a remaining life of ten years. January 1, Year 1 journal entry to record the sale on Olinto's books:

DR: Cash $100,000

DR: Accumulated depreciation $20,000

CR: Machinery (original cost) $90,000

CR: Intercompany gain on sale of machinery $30,000

January 1, Year 1 journal entry to record the purchase on Gearty's books:

DR: Machinery $100,000

CR: Cash $100,000

December 31, Year 1 journal entry to record the depreciation on Gearty's books:

DR: Depreciation expense ($100,000/10) $10,000

CR: Accumulated depreciation $10,000

December 31, Year 1 workpaper elimination entry- Elimination of intercompany gain and adjustment of the machine and accumulated depreciation accounts to their original balance:

DR: Intercompany gain on sale of machinery $30,000

CR: Machinery ($100,000 - $90,000) $10,000

CR: Accumulated depreciation $20,000

The depreciation expense recorded by Gearty is overstated by the intercompany profit included in the cost of the machinery.

Workpaper elimination entry- Elimination of excess depreciation :

DR: Accumulated depreciation $3,000

CR: Depreciation expense $3,000

Can anyone help me understand this? I'm stumped on the year 1 workpaper elimination bit. Is accum. dep. a plug in this case? Because a credit of $20,000 doesn't seem to be an adjustment of the accum. dep. account to its original balance. I feel like it's really simple but for some reason I just can't grasp it. Any help is appreciated, thanks!