Question

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

Answer 1

				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