P5.4 Intercompany transfer of fixed assets

Parent Co purchased an equipment on 1 January 20x1 for $200,000. The estimated useful life at that date was ten years with a nil residual value. On 1 July 20x5, Parent Co sold the equipment to Subsidiary Co for $120,000. Parent Co had 90% ownership interest in Subsidiary Co. On 1 July 20x5, the remaining economic useful life was re-estimated as seven years. Net profit after tax of Subsidiary Co for 20x5 was $500,000. Assume tax rate of 20% throughout.

Required:

1. Show the consolidated journal entries for 20x5 relating to the above transaction

2. If the situation had been reversed in that is was Subsidiary Co that sold the equipment to Parent Co, show the consolidated journal entries for 20x5