Question

In: Accounting

On January 1, 2017, a subsidiary sold equipment to its parent for $520,000. The subsidiary’s original...

On January 1, 2017, a subsidiary sold equipment to its parent for $520,000. The subsidiary’s original cost was $200,000 and as of January 1, 2017, $20,000 in depreciation had been recorded on the subsidiary’s books. At the date of sale, the equipment had a 10-year remaining life, straight-line. It is now December 31, 2021 (5 years since the sale), and the parent still holds the equipment. REQUIRED: Prepare the consolidation eliminating entries for 2021

Solutions

Expert Solution

Subisidiary books Parent books consolidation eliminating entries for 2021
Jan-17 Original cost of quipment $200,000
Accumulated depreciation $20,000
Net BV $180,000
Sale value $520,000
Profit on sale of fixed asset $340,000 (10 YEARS REMAINING LIFE)
Depreciation expense Dr $20,000
Accumulated depreciation Cr $20,000
Record depreciation expense on equipment sold
Parent A/c Dr $520,000
Accumulated depreciation Dr $20,000
Fixed assets Cr $200,000
Profit on sale of fixed asset Cr $340,000
Record gain on sale of asset
Fixed assets Dr $520,000
Subsidiary A/c Dr $520,000
Record purchase of asset
31-Dec-21 Profit on sale of fixed asset Dr $340,000 Refer Note 1
Fixed assets Cr $320,000 Refer Note 2
Accumulated depreciation Cr $20,000
Eliminate unrealised gain on downstream sale
Note 1 Represents the difference between amount to be received and asset sold
Note 2 Sale to third party

Related Solutions

1. On January 1, 2017, a subsidiary sold equipment to its parent for $520,000. The subsidiary’s...
1. On January 1, 2017, a subsidiary sold equipment to its parent for $520,000. The subsidiary’s original cost was $200,000 and as of January 1, 2017, $20,000 in depreciation had been recorded on the subsidiary’s books. At the date of sale, the equipment had a 10-year remaining life, straight-line. It is now December 31, 2021 (5 years since the sale), and the parent still holds the equipment. REQUIRED: Prepare the consolidation eliminating entries for 2021 2. Baracus, Inc. pays $95,000...
In January of 2019, a wholly owned subsidiary sold Equipment to the parent for a cash...
In January of 2019, a wholly owned subsidiary sold Equipment to the parent for a cash price of $122,500. The subsidiary had acquired the equipment at a cost of $140,000 and the estimated useful life when purchased was 10 years, and there was no salvage value. The subsidiary had depreciated the equipment for 4 years at the time of sale using the straight line method. The parent retained the depreciation policy of the subsidiary and depreciated the equipment over its...
A parent provides marketing services to its subsidiary during 2017. The parent charged the subsidiary $500,000...
A parent provides marketing services to its subsidiary during 2017. The parent charged the subsidiary $500,000 for the services. The services cost the parent $400,000 (paid in cash). The companies use service revenue and service expense, as appropriate, to record this transaction and all intercompany charges were still unpaid as of the end of the year. Provide the 2017 entries needed to record both the original transactions and the eliminations necessary for consolidation. Provide entries for Parent, Subsidiary, and the...
A. When a parent obtains control over a subsidiary, the carrying amounts of the subsidiary’s assets...
A. When a parent obtains control over a subsidiary, the carrying amounts of the subsidiary’s assets at the date of acquisition are compared to fair value. If there are differences between these values, adjustments are required to be made in the consolidation worksheets. Explain why. B. Which asset that is acquired is not measured at fair value? 250 words EACH
When a parent obtains control over a subsidiary, the carrying amounts of the subsidiary’s assets at...
When a parent obtains control over a subsidiary, the carrying amounts of the subsidiary’s assets at the date of acquisition are compared to fair value. If there are differences between these values, adjustments are required to be made in the consolidation worksheets. Explain why. Which asset that is acquired is not measured at fair value?
Assume that on January 1, 2012, a parent company acquired a 80% interest in a subsidiary’s...
Assume that on January 1, 2012, a parent company acquired a 80% interest in a subsidiary’s voting common stock. On the date of acquisition, the fair value of the subsidiary’s net assets equaled their reported book values. On January 1, 2014, the subsidiary purchased a building for $336,000. The building has a useful life of 8 years and is depreciated on a straight-line basis with no salvage value. On January 1, 2016, the subsidiary sold the building to the parent...
Assume that a Parent company acquires an 80% interest in its Subsidiary on January 1, 2020....
Assume that a Parent company acquires an 80% interest in its Subsidiary on January 1, 2020. On January 1, 2020, the book value of net assets and the fair value of the identifiable net assets equaled the book value of identifiable net assets (i.e. there was no AAP or Goodwill). The parent uses the equity method to account for its investment in the subsidiary. On December 31, 2021, the Subsidiary company issued $1,000,000 (face) 6 percent, five-year bonds to an...
Assume that a Parent company acquires a 75% interest in its Subsidiary on January 1, 2016....
Assume that a Parent company acquires a 75% interest in its Subsidiary on January 1, 2016. On the date of acquisition, the fair value of the 75% controlling interest was $1,800,000 and the fair value of the 25% noncontrolling interest was $600,000. On January 1, 2016, the book value of net assets equaled $2,400,000 and the fair value of the identifiable net assets equaled the book value of identifiable net assets (i.e. there was no AAP or Goodwill). The parent...
Assume that a Parent company acquires a 90% interest in its Subsidiary on January 1, 2016....
Assume that a Parent company acquires a 90% interest in its Subsidiary on January 1, 2016. On the date of acquisition, the fair value of the 90% controlling interest was $2,160,000 and the fair value of the 10% noncontrolling interest was $240,000. On January 1, 2016, the book value of net assets equaled $2,400,000 and the fair value of the identifiable net assets equaled the book value of identifiable net assets (i.e. there was no AAP or Goodwill). The subsidiary’s...
Assume that a Parent company acquires a 90% interest in its Subsidiary on January 1, 2016....
Assume that a Parent company acquires a 90% interest in its Subsidiary on January 1, 2016. On the date of acquisition, the fair value of the 90% controlling interest was $2,160,000 and the fair value of the 10% noncontrolling interest was $240,000. On January 1, 2016, the book value of net assets equaled $2,400,000 and the fair value of the identifiable net assets equaled the book value of identifiable net assets (i.e. there was no AAP or Goodwill). The subsidiary’s...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT