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

Assume on January 1, 2017, a wholly owned subsidiary sells to its parent, for a sale price of $132,000, equipment that originally cost $180,000. The subsidiary originally purchased the equipment on January 1, 2013, 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 2017.

$Answer

c. Prepare the required [I] consolidation journal entry in 2017 (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, 2019. 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