Question text

Preparing the [I] consolidation journal entries for sale of depreciable assets - Equity method Assume that on January 1, 2011, a wholly owned subsidiary sells to its parent, for a sale price of $132,000, equipment that originally cost $156,000. The subsidiary originally purchased the equipment on January 1, 2007, and depreciated the equipment assuming a 10-year useful life (straight-line with no salvage value). The parent has adopted the subsidiary's depreciation policy and depreciates the equipment over the remaining useful life of 6 years. The parent uses the full equity method to account for its Equity Investment.

a. Compute the annual 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 2011. $ 69,600 c. Prepare the required [l] consolidation journal entry in 2011 (assume a full year of depreciation). Credit Consolidation Worksheet Description (Igain] Gain on sale of equipment Equipment Accumulated depreciation-Equipment [Idepr) Accumulated depreciation Equipment Depreciation expense Debit 0x 0x 0 Ox 0 OX O OX d. Now assume that you are preparing the year-end consolidation journal entries for the year ending December 31, 2013. Prepare the required [I] cons entries during the holding period. Consolidation Worksheet Description Debit Credit Ilgain] Investment in subsidiary 0 x Equipment 0 x Accumulated depreciation-Equipment [ldepr] Accumulated depreciation-Equipment Depreciation expense