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Preparing the [I] consolidation journal entries for sale of depreciable assets - Equity method Assume that...

Preparing the [I] consolidation journal entries for sale of depreciable assets - Equity method
Assume that on January 1, 2011, a wholly owned subsidiary sells to its parent, for a sale price of $126,000, equipment that originally cost $148,000. The subsidiary originally purchased the equipment on January 1, 2007, and depreciated the equipment assuming a 10-year useful life (straight-line with no salvage value). The parent has adopted the subsidiary's depreciation policy and depreciates the equipment over the remaining useful life of 6 years. The parent uses the full equity method to account for its Equity Investment.

a. Compute the annual depreciation expense for the subsidiary (pre-intercompany sale) and the parent (post-intercompany sale).

Annual depreciation expense-subsidiary $Answer
Annual depreciation expense-parent $Answer

b. Compute the pre-consolidation Gain on Sale recognized by the subsidiary during 2011.

$Answer

c. Prepare the required [I] consolidation journal entry in 2011 (assume a full year of depreciation).

Consolidation Worksheet
Description Debit Credit
[Igain] AnswerEquipmentAccumulated depreciation-EquipmentInvestment in subsidiaryDepreciation expenseGain on sale of equipment Answer Answer
Equipment Answer Answer
AnswerEquipmentAccumulated depreciation-EquipmentInvestment in subsidiaryDepreciation expenseGain on sale of equipment Answer Answer
[Idepr] AnswerEquipmentAccumulated depreciation-EquipmentInvestment in subsidiaryDepreciation expenseGain on sale of equipment Answer Answer
AnswerEquipmentAccumulated depreciation-EquipmentInvestment in subsidiaryDepreciation expenseGain on sale of equipment Answer Answer

d. Now assume that you are preparing the year-end consolidation journal entries for the year ending December 31, 2013. Prepare the required [I] consolidation journal entries during the holding period.

Consolidation Worksheet
Description Debit Credit
[Igain] Investment in subsidiary Answer Answer
AnswerEquipmentAccumulated depreciation-EquipmentInvestment in subsidiaryDepreciation expenseGain on sale of equipment Answer Answer
AnswerEquipmentAccumulated depreciation-EquipmentInvestment in subsidiaryDepreciation expenseGain on sale of equipment Answer Answer
[Idepr] AnswerEquipmentAccumulated depreciation-EquipmentInvestment in subsidiaryDepreciation expenseGain on sale of equipment Answer Answer
AnswerEquipmentAccumulated depreciation-EquipmentInvestment in subsidiaryDepreciation expenseGain on sale of equipment Answer Answer

Solutions

Expert Solution

a1. Annual depreciation expense-subsidiary
Annual depreciation expense-subsidiary = (Cost - Salvage) / Useful Life

Annual depreciation expense-subsidiary = (148000 - 0) / 10

Annual depreciation expense-subsidiary = $14800

a2. Annual depreciation expense-parent

Annual depreciation expense-Parent = (Cost - Salvage) / Useful Life

Annual depreciation expense-Parent = (126000 - 0) / 6

Annual depreciation expense-Parent = $21000

b. Gain on sale recognized by subsidiary

Gain on sale recognized by subsidiary = Sale Proceeds - (Cost - Depreciation till January 2011)

Gain on sale recognized by subsidiary = 126000 - (148000 - 14800 * 4)

Gain on sale recognized by subsidiary = 126000 - (148000 - 59200)

Gain on sale recognized by subsidiary = 37200

c. Consolidated Journal Entries

Ref. Description Debit Credit
Gain Gain on sale of Equipment 37200
Equipment 31000
Depreciation (21000 - 14800) 6200
Deperciation Depreciation Expense 21000
Accumulated Depreciation Equipment 21000

d. Consolidated Journal Entries

Ref Description Debit Credit
Investment in Subsidiary 37200
Equipment 31000
Depreciation Expense 6200
Depreciation Depreciation Expense 21000
Accumulated Depreciation - Equipment 21000

ekkarill92 answered 1 year ago
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