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?
