Preparing the [I] consolidation entries for sale of depreciable assets—Equity method Assume that on January 1, 2016,...

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_{Preparing the [I] consolidation entries for sale ofdepreciable assets—Equity method}
_{Assume that on January 1, 2016, a parent sells to itswholly owned subsidiary, for a sale price of $162,000, equipmentthat originally cost $184,000. The parent originally purchased theequipment on January 1, 2012, and depreciated the equipmentassuming a 10-year useful life (straight-line with no salvagevalue). The subsidiary has adopted the parent’s depreciation policyand depreciates the equipment over the remaining useful life of 6years. The parent uses the equity method to account for its EquityInvestment.}
_{a. Compute the annual pre-consolidation depreciationexpense for the subsidiary (post-intercompany sale) and the parent(pre-intercompany sale).
b. Compute the pre-consolidation Gain on Sale recognized by theparent during 2016.}
_{c. Prepare the required [I] consolidation entry in 2016(assume a full year of depreciation).}
_{d. Prepare the required [l] consolidation entry in 2019(assuming the subsidiary is still holding the equipment).}
_{e. How long must we continue to make [I] consolidatedentries?}

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Solution Depreciation Value Asset Purchase ValueSalvage Value Useful life of years Depreciation Value 184000 0 10 years 18400 per year a Annual preconsolidation depreciation expense for the the parent preintercompany sale 18400 per annum In the Books of Parent Company Computation of Depreciation Date Description Amount 01012012 Plant Machinery Ac 184000 31122012 Less Depreciation 10 18400 01012013 Book Value of Asset on 2012 165600 31122013 Less Depreciation 10 18400 01012014 Book Value of Asset on 2013 147200 31122014 Less Depreciation 10 18400 01012015 Book Value of Asset on 2014 128800 31122015 Less Depreciation 10 18400 01012016 Book Value of Asset on 2015 110400 At the time of transfer the value of the Equipment is 110400 Annual preconsolidation depreciation expense for See Answer

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