Preparing the $[$I$]$ consolidation entries for sale of depreciable assets$$Cost method

Assume on January $1,2019,$ a parent sells to its wholly owned subsidiary, for a sale price of $$90,000,$ equipment that originally cost $$108,000.$ The parent originally purchased the equipment on January $1,2015,$ and depreciated the equipment assuming a $12-$year useful life $($straight$-$line with no salvage value$).$ The subsidiary has adopted the parent$$s 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

Subsidiary depreciation expense

b$.$ Compute the pre$-$consolidation Gain on Sale recognized by the parent during $2019.$

$Answer

c$.$ Prepare the required $[$I$]$ consolidation entry in $2019($assume a full year of depreciation$).$

Consolidation Journal

Description Debit Credit

$[$Igain$]$

Equipment

$[$Idep$]$

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 $31,2022?$ 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 $31,2022$ to show the effect of the deferred gain on the intercompany sale.

Consolidation Journal

Description Debit Credit

$[$ADJ$]$

e$.$ Prepare the required $[$I$]$ consolidation entry in $2022($assuming the subsidiary is still holding the equipment$).$

Consolidation Journal

Description Debit Credit

$[$Igain$]$

Equipment

$[$Idep$]$