Question

1. On January 1, 2017, a subsidiary sold equipment to its parent for $520,000. The subsidiary’s...

1. On January 1, 2017, a subsidiary sold equipment to its parent for $520,000. The subsidiary’s original cost was $200,000 and as of January 1, 2017, $20,000 in depreciation had been recorded on the subsidiary’s books. At the date of sale, the equipment had a 10-year remaining life, straight-line. It is now December 31, 2021 (5 years since the sale), and the parent still holds the equipment.

REQUIRED: Prepare the consolidation eliminating entries for 2021

Business   Accounting   
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Answer #1
Rectifying Entries
Retained Earnings A/c Dr 340000
To Equipment A/c Cr 340000
(being profit eliminated)
Accumulated Deprectaion on Equipment A/c Dr 170000
Retained Earnings A/c Cr 170000

( Being Accumulated Depreciation Adjusted)

Workings:
1 Cost in Books A 520000
Accumulated Depreciation
Year
2017 52000
2018 52000
2019 52000
2020 52000
2021 52000
B 260000
Net Value A-B

260000
2 Actual Valuation
Cost in Books A 200000
Accumulated Depreciation B 20000
Carrying Amount A-B 180000
Depreciation for 5 years
2017 18000
2018 18000
2019 18000
2020 18000
2021 18000
90000
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