Preparing the [I] consolidation journal entries for sale of depreciable assets - Equity method

Assume that on January 1, 2014, a wholly owned subsidiary sells to its parent, for a sale price of $115,000, equipment that originally cost $150,000. The subsidiary originally purchased the equipment on January 1, 2010, 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).

b. Compute the pre-consolidation Gain on Sale recognized by the subsidiary during 2014.

c. Prepare the required [I] consolidation journal entry in 2014 (assume a full year of depreciation).

d. Now assume that you are preparing the year-end consolidation journal entries for the year ending December 31, 2016. Prepare the required [I] consolidation journal entries during the holding period.