Question text
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 $132,000, equipment that originally
cost $156,000. 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).
![b. Compute the pre-consolidation Gain on Sale recognized by the subsidiary during 2011. $ 69,600 c. Prepare the required [l]](http://img.homeworklib.com/questions/48554050-79ad-11ea-8ddd-c37645a06b91.png?x-oss-process=image/resize,w_560)
Homework Answers
| a) | Annual Depreciation Expense for Subsidiary (Pre-Intercompany sale) | |||
| =156000/10 | ||||
| $ 15,600.00 | per year | |||
| Annual Depreciation Expense for Parent (Post-Intercompany sale) | ||||
| =Purchase cost/Remaining Life | ||||
| =132000/6 | ||||
| $ 22,000.00 | per year | |||
| b) | Computation of Pre consolidation Gain | |||
| Cost of Asset | $ 156,000.00 | |||
| Accumulated Depreciation till Date | $ 62,400.00 | |||
| i | Depreciated Value | $ 93,600.00 | ||
| ii | Sale Price of Asset | 132000 | ||
| Profit on sale (ii-i) | $ 38,400.00 | |||
| c) | Description | Debit | Credit | |
| Gain on sale of equipment | $ 38,400.00 | |||
| Equipment | $ 24,000.00 | |||
| Accumulated depreciation- Equipment | $ 62,400.00 | |||
| Accumulated depreciation- Equipment | $ 6,400.00 | |||
| Depreciation Expense | $ 6,400.00 | |||
| c) | Description | Debit | Credit | |
| Investment in Subsidiary | $ 60,800.00 | |||
| Equipment | $ 66,000.00 | |||
| Accumulated depreciation- Equipment | $ 126,800.00 | |||
| Accumulated depreciation- Equipment | $ 22,000.00 | |||
| Depreciation Expense | $ 22,000.00 | |||
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