In: Accounting
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
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 ) | ||||