Equity method to account for its equity investment

Posted: March 29th, 2022

 
 
Assume that on January 1, 2016, a parent sells to its wholly owned subsidiary, for a sale price of $364,500, equipment that originally cost $414,000. The parent originally purchased the equipment on January 1, 2012, and depreciated the equipment assuming a 10-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 6 years. The parent uses the equity method to account for its Equity Investment.
a. Compute the annual pre-consolidation depreciation expense for the subsidiary (postintercompany sale) and the parent (pre-intercompany sale).
Subsidiary – depreciation $Answer
Parent – depreciation $Answer
b. Compute the pre-consolidation Gain on Sale recognized by the parent during 2016.$Answer
c. Prepare the required [I] consolidation entry in 2016 (assume a full year of depreciation).

Description
Debit
Credit

[lgain]
Equipment
Answer
Answer

 
AnswerAccounts payableAccounts receivableAccumulated depreciationAPICCashCommon stockCost of goods soldDepreciation expenseEquipmentEquity investmentGain on saleLoss on saleGoodwillInventoryLandRetained earningsSales
Answer
Answer

 
AnswerAccounts payableAccounts receivableAccumulated depreciationAPICCashCommon stockCost of goods soldDepreciation expenseEquipmentEquity investmentGain on saleLoss on saleGoodwillInventoryLandRetained earningsSales
Answer
Answer

[ldep]
AnswerAccounts payableAccounts receivableAccumulated depreciationAPICCashCommon stockCost of goods soldDepreciation expenseEquipmentEquity investmentGain on saleLoss on saleGoodwillInventoryLandRetained earningsSales
Answer
Answer

 
AnswerAccounts payableAccounts receivableAccumulated depreciationAPICCashCommon stockCost of goods soldDepreciation expenseEquipmentEquity investmentGain on saleLoss on saleGoodwillInventoryLandRetained earningsSales
Answer
Answer

d. Prepare the required [l] consolidation entry in 2019 (assuming the subsidiary is still holding the equipment).

Description
Debit
Credit

[lgain]
Equipment
Answer
Answer

 
AnswerAccounts payableAccounts receivableAccumulated depreciationAPICCashCommon stockCost of goods soldDepreciation expenseEquipmentEquity investmentGain on saleLoss on saleGoodwillInventoryLandRetained earningsSales
Answer
Answer

 
AnswerAccounts payableAccounts receivableAccumulated depreciationAPICCashCommon stockCost of goods soldDepreciation expenseEquipmentEquity investmentGain on saleLoss on saleGoodwillInventoryLandRetained earningsSales
Answer
Answer

[ldep]
AnswerAccounts payableAccounts receivableAccumulated depreciationAPICCashCommon stockCost of goods soldDepreciation expenseEquipmentEquity investmentGain on saleLoss on saleGoodwillInventoryLandRetained earningsSale
Answer
Answer

 
AnswerAccounts payableAccounts receivableAccumulated depreciationAPICCashCommon stockCost of goods soldDepreciation expenseEquipmentEquity investmentGain on saleLoss on saleGoodwillInventoryLandRetained earningsSales
Answer
Answer