Preparing the [I] consolidation entries for sale of depreciable assetsCost method Assume that on January 1, 2013, a parent sells to its wholly owned subsidiary, for a sale price of $226800 equipment that originally cost $259200 The parent originally purchased the equipment on January 1, 2009, and depreciated the equipment assuming a 12-year useful life (straight-line with no salvage value). The subsidiary has adopted the parents depreciation policy and depreciates the equipment over the remaining useful life of 8 years. The parent uses the cost method of pre-consolidation investment bookkeeping.

a. Compute the pre-consolidation annual depreciation expense for the subsidiary (post-intercompany sale) and the parent (pre-intercompany sale).

Parent depreciation expense	Answer
Subsidiary depreciation expense	Answer

b. Compute the pre-consolidation Gain on Sale recognized by the parent during 2013.

$Answer

c. Prepare the required [I] consolidation entry in 2013 (assume a full year of depreciation).

Consolidation Journal
	Description	Debit	Credit
[Igain]	AnswerAccumulated depreciationBOY Retained earnings-ParentDepreciation expenseEquity investmentGain on sale of equipment	Answer	Answer
	Equipment	Answer	Answer
	AnswerAccumulated depreciationBOY Retained earnings-ParentDepreciation expenseEquity investmentGain on sale of equipment	Answer	Answer
[Idep]	AnswerAccumulated depreciationBOY Retained earnings-ParentDepreciation expenseEquity investmentGain on sale of equipment	Answer	Answer
	AnswerAccumulated depreciationBOY Retained earnings-ParentDepreciation expenseEquity investmentGain on sale of equipment	Answer	Answer

d. With respect to the deferred gain on intercompany sale, what effect (i.e., amount) will it have on the [ADJ] entry necessary to prepare the consolidated financial statements for the year ended December 31, 2016? In addition, specify the account that will be debited and the account that will be credited in the [ADJ] entry for the effect of the deferred gain on intercompany sale.

Prepare the [ADJ] consolidation entry for December 31, 2016 to show the effect of the deferred gain on the intercompany sale.

Consolidation Journal
	Description	Debit	Credit
[ADJ]	AnswerAccumulated depreciationBOY Retained earnings-ParentDepreciation expenseEquity investmentGain on sale of equipment	Answer	Answer
	AnswerAccumulated depreciationBOY Retained earnings-ParentDepreciation expenseEquity investmentGain on sale of equipment	Answer	Answer

e. Prepare the required [I] consolidation entry in 2016 (assuming the subsidiary is still holding the equipment).

Consolidation Journal
	Description	Debit	Credit
[Igain]	AnswerAccumulated depreciationBOY Retained earnings-ParentDepreciation expenseEquity investmentGain on sale of equipment	Answer	Answer
	Equipment	Answer	Answer
	AnswerAccumulated depreciationBOY Retained earnings-ParentDepreciation expenseEquity investmentGain on sale of equipment	Answer	Answer
[Idep]	AnswerAccumulated depreciationBOY Retained earnings-ParentDepreciation expenseEquity investmentGain on sale of equipment	Answer	Answer
	AnswerAccumulated depreciationBOY Retained earnings-ParentDepreciation expenseEquity investmentGain on sale of equipment	Answer	Answer