Question
In: Accounting
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 = (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 |
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