Question

In: Accounting

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 remaining 6-year useful life.

Prepare the following journal entries:

a) the journal entry the subsidiary made to record the sale of the equipment to the parent

b) the journal entry that the parent made to record the purchase

c) the eliminating [I] entries for the year of sale relating to the gain on sale of equipment and the depreciation

a. Subsidiary:

DR: Cash

DR: ?

CR: ?

CR: Property, Plant and Equipment

b. Parent

DR: ?

CR: ?

c. [I] Gain

DR: ?

DR: Property, Plant and Equipment

CR: ?

[I] Depreciation

DR: ?

CR:?

Solutions

Expert Solution

a) the journal entry the subsidiary made to record the sale of the equipment to the parent

Trn. Account Titles Debit Credit
a) Cash $122,500
Accumulated depreciation [($140000/10 years) × 4 years] $56,000
Equipment $140,000
Gain on sale (b/f) $38,500
(To record the sale of equipment)

__________________________________________________________________

b) the journal entry that the parent made to record the purchase

Trn. Account Titles Debit Credit
b) Gain on sale $38,500
Equipment $17,500
Accumulated depreciation $56,000

______________________________________________________________

c)

Trn. Account Titles Debit Credit
c) Accumulated depreciation $6,417
Depreciation Expense [$20,417 - $14,000] $6,417
[$122500/6 = $20417]
[$140000/10 = $14000]
(To eliminate the excess depreciation expense recorded by subsidiary, and to adjust accumulated depreciation)

ekkarill92 answered 2 years ago
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