In: Accounting
Parent Corporation holds 70 percent of Subsidiary Company's voting common stock. On January 1, 2011, Parent paid $500,000 to acquire a building with a 10-year expected economic life. Parent uses straight-line depreciation for all depreciable assets. On December 31, 2016, Subsidiary purchased the building from Parent for $180,000 and resumed the same remaining useful life. Prepare Parent’s adjusting journal entries and the consolidation entries that related to intercompany sale of building for 2018. (Remember to include all necessary reversal journal entries to Parent’s accounts in the consolidation entries)
Book value at the time of sale in parent's books = $500,000/10 years life X 4 years remaining life = $200,000
It is sold for $180,000.
Loss on sale = $200,000 - $180,000 = $20,000.
Amount of depreciation that could have taken in parents books on loss attributable to asset for two years from 2017 to 2018 = $20,000/4 years remaining life X2 = $10,000. ($5,000 for 2017 and $5,000 for 2018)
Adjusting entry is:
Account | Debit | Credit |
Building | $ 20,000 | |
Depreciation expense | $ 5,000 | |
Accumulated depreciation | $ 10,000 | |
Retained earings - parent | $ 15,000 | |
[$20,000 - $5,000] |
Loss on sale is debited to building account. Current year depreciation excess that could have been recorded without sale is recorded.
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