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Problem2: On January 1, 2012, Smeder Company, an 80% owned subsidiary of Collins, Inc. transferred equipment...

Problem2: On January 1, 2012, Smeder Company, an 80% owned subsidiary of Collins, Inc. transferred equipment with a 10-year life (six of which remain with no salvage value) to Collins in exchange for $94,000 cash. At the date of transfer, Smeder's records carried the equipment at a historical cost of $140,000 less accumulated depreciation of $68,000. Straight-line depreciation is used. Smeder reported net income of $28,000 for 2012 and 2013, respectively.

Prepare the consolidation entries related to the equipment for year 2012 and year 2013

Solutions

Expert Solution

Book Value $72,000 (140,000 - 68,000 )
Sale Price $ 94,000
Intercompany gain on sale $ 22,000 ( 94,000 - 72,000 )
Consolidation entries
Year Account Titles Debit $ Credit $
2012 Inter company gain on sale of equipment 22,000
Equipment (94,000 / 6 ) 15,667
Accumulated Depreciation     6,333
(22,000 / 6 )
( To restore Equipment at Semder company book value at end of year 2012)
2012 Accumulated Depreciation ( 22,000 / 6 )    3,667
Depreciation expense     3,667
( To eliminate excess depreciation )
Year Account Titles Debit $ Credit $
2013 Retained Earnings ( 22,000 - 3,667 ) 18,333
Equipment 15,667
Accumulated Depreciation     2,666
( To adjust equipment )
2013 Accumulated Depreciation    3,667
Depreciation expense     3,667
( To adjust depreciation )

ekkarill92 answered 3 years ago
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