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 $126,000, equipment that originally cost $148,000. 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).

Annual depreciation expense-subsidiary	$Answer
Annual depreciation expense-parent	$Answer

b. Compute the pre-consolidation Gain on Sale recognized by the subsidiary during 2011.

$Answer

c. Prepare the required [I] consolidation journal entry in 2011 (assume a full year of depreciation).

Consolidation Worksheet
	Description	Debit	Credit
[Igain]	AnswerEquipmentAccumulated depreciation-EquipmentInvestment in subsidiaryDepreciation expenseGain on sale of equipment	Answer	Answer
	Equipment	Answer	Answer
	AnswerEquipmentAccumulated depreciation-EquipmentInvestment in subsidiaryDepreciation expenseGain on sale of equipment	Answer	Answer
[Idepr]	AnswerEquipmentAccumulated depreciation-EquipmentInvestment in subsidiaryDepreciation expenseGain on sale of equipment	Answer	Answer
	AnswerEquipmentAccumulated depreciation-EquipmentInvestment in subsidiaryDepreciation expenseGain on sale of equipment	Answer	Answer

d. Now assume that you are preparing the year-end consolidation journal entries for the year ending December 31, 2013. Prepare the required [I] consolidation journal entries during the holding period.

Consolidation Worksheet
	Description	Debit	Credit
[Igain]	Investment in subsidiary	Answer	Answer
	AnswerEquipmentAccumulated depreciation-EquipmentInvestment in subsidiaryDepreciation expenseGain on sale of equipment	Answer	Answer
	AnswerEquipmentAccumulated depreciation-EquipmentInvestment in subsidiaryDepreciation expenseGain on sale of equipment	Answer	Answer
[Idepr]	AnswerEquipmentAccumulated depreciation-EquipmentInvestment in subsidiaryDepreciation expenseGain on sale of equipment	Answer	Answer
	AnswerEquipmentAccumulated depreciation-EquipmentInvestment in subsidiaryDepreciation expenseGain on sale of equipment	Answer	Answer