On January 1, 2017, a subsidia
On January 1, 2017, a subsidiary sold equipment to its parentfor $520,000. The subsidiary’s original cost was $200,000 and as ofJanuary 1, 2017, $20,000 in depreciation had been recorded on thesubsidiary’s books. At the date of sale, the equipment had a10-year remaining life, straight-line. It is now December 31, 2021(5 years since the sale), and the parent still holds the equipment.REQUIRED: Prepare the consolidation eliminating entries for2021
Answer:
| Subisidiary books | Parent books | consolidation eliminating entries for2021 | |||||
| Jan-17 | Original cost of quipment | $200,000 | |||||
| Accumulated depreciation | $20,000 | ||||||
| Net BV | $180,000 | ||||||
| Sale value | $520,000 | ||||||
| Profit on sale of fixed asset | $340,000 | (10 YEARS REMAINING LIFE) | |||||
| Depreciation expense | Dr | $20,000 | |||||
| Accumulated depreciation | Cr | $20,000 | |||||
| Record depreciation expense on equipment sold | |||||||
| Parent A/c | Dr | $520,000 | |||||
| Accumulated depreciation | Dr | $20,000 | |||||
| Fixed assets | Cr | $200,000 | |||||
| Profit on sale of fixed asset | Cr | $340,000 | |||||
| Record gain on sale of asset | |||||||
| Fixed assets | Dr | $520,000 | |||||
| Subsidiary A/c | Dr | $520,000 | |||||
| Record purchase of asset | |||||||
| 31-Dec-21 | Profit on sale of fixed asset | Dr | $340,000 | Refer Note 1 | |||
| Fixed assets | Cr | $320,000 | Refer Note 2 | ||||
| Accumulated depreciation | Cr | $20,000 | |||||
| Eliminate unrealised gain on downstream sale | |||||||
| Note 1 | Represents the difference between amount to bereceived and asset sold | ||||||
| Note 2 | Sale to third party | ||||||
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