Question
Assume on January 1, 2020, a wholly owned subsidiary sells to its parent, for a sale price of $88,000, equipment that originally cost $120,000. The
Assume on January 1, 2020, a wholly owned subsidiary sells to its parent, for a sale price of $88,000, equipment that originally cost $120,000. The subsidiary originally purchased the equipment on January 1, 2016, and depreciated the equipment assuming a 12-year useful life (straight-line with no salvage value). The parent has adopted the subsidiarys depreciation policy and depreciates the equipment over the remaining useful life of 8 years. The parent uses the equity method to account for its Equity Investment.
a. Compute the annual pre-consolidation depreciation expense for the subsidiary (pre-intercompany sale) and the parent (post-intercompany sale).
| Annual depreciation expense-subsidiary |
|
| Annual depreciation expense-parent |
|
b. Compute the pre-consolidation Gain on Sale recognized by the subsidiary during 2020.
$Answer
c. Prepare the required [I] consolidation journal entry in 2020 (assume a full year of depreciation).
| Consolidation Worksheet | |||
|---|---|---|---|
| Description | Debit | Credit | |
| [Igain] | EquipmentAccumulated depreciation-EquipmentInvestment in subsidiaryDepreciation expenseGain on sale of equipment
|
|
|
| Equipment |
|
| |
| EquipmentAccumulated depreciation-EquipmentInvestment in subsidiaryDepreciation expenseGain on sale of equipment
|
|
| |
| [Idep] | EquipmentAccumulated depreciation-EquipmentInvestment in subsidiaryDepreciation expenseGain on sale of equipment
|
|
|
| EquipmentAccumulated depreciation-EquipmentInvestment in subsidiaryDepreciation expenseGain on sale of equipment
|
|
| |
d. Now assume that you are preparing the year-end consolidation journal entries for the year ending December 31, 2022. Prepare the required [I] consolidation journal entries during the holding period.
| Consolidation Worksheet | |||
|---|---|---|---|
| Description | Debit | Credit | |
| [Igain] | Investment in subsidiary |
|
|
| EquipmentAccumulated depreciation-EquipmentInvestment in subsidiaryDepreciation expenseGain on sale of equipment
|
|
| |
| EquipmentAccumulated depreciation-EquipmentInvestment in subsidiaryDepreciation expenseGain on sale of equipment
|
|
| |
| [Idep] | EquipmentAccumulated depreciation-EquipmentInvestment in subsidiaryDepreciation expenseGain on sale of equipment
|
|
|
| EquipmentAccumulated depreciation-EquipmentInvestment in subsidiaryDepreciation expenseGain on sale of equipment
|
|
| |
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Accounting For Beginners
Authors: Neel Gaines
1st Edition
1801120897, 978-1801120890
