Question & Answer: 2. Assume that a parent company owns a 100% controlling interest in its long-held subsidiary. On January 1, 2013, a parent company sold eq…..

2. Assume that a parent company owns a 100% controlling interest in its long-held subsidiary. On January 1, 2013, a parent company sold equipment to the subsidiary for $147,000. The equipment originally cost the parent $168,000, and accumulated depreciation through December 31, 2012 was $42,000. The parent depreciated the equipment assuming a 12-year useful life under the straight-line method and no salvage value. After the transfer, the subsidiary will depreciate the equipment for 9 years with no salvage value. Related to the transferred equipment, what is the net balance that will be reported in the December 31, 2013 consolidated balance sheet?

A. $126,000

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B. $133,000

C. $112,000

D. $105,000

1. Assume that a parent company owns a 100% controlling interest in its long-held subsidiary. On December 31, 2013, a parent company sold equipment to the subsidiary for $118,000. The equipment originally cost the parent $180,000, and accumulated depreciation through December 31, 2013 was $36,000. The parent depreciated the equipment for 10 years using the straight-line method and no salvage value. After the transfer, the subsidiary will depreciate the equipment for 8 years with no salvage value. Related to the transferred equipment, which of the following items is true regarding the preparation of the consolidated financial statements for the year ending December 31, 2013?

A. The consolidation entries will include a $26,000 debit to “Equipment (gross)”

B. The consolidation entries will include a $26,000 credit to “Loss on Sale of Equipment”

C. The consolidation entries will include a $26,000 debit to “Gain on Sale of Equipment”

D. The consolidation entries will include a $26,000 credit to “Accumulated depreciation”

Expert Answer

 

2.C.$112,000.

the following table shows the calculation at which the equipment will appear in the balance sheet on 31, december 2013..

Original cost $168,000
less: accumulated depreciation ($42,000)
book value on january 1,2013 $126,000
less: deprecaiton for 2013 ( book value / remaining life) =>($126,000/9 years) ($14,000)
balance in consolidated balance sheet on december 13,2013 $112,000

note: the sale value of equiipment by the holding to subsidary is not material while reporting the equipment in consolidated balalnce sheet.

In other words the gain realised by the holding company is to be ignored.

1.B.The consolidation entries will include a $26,000 credit to ”loss on sale of equipment”.

the following will be the required consolidation entry.

Equipment a/c $62,000
…………To Accumulated depreciation a/c $36,000
……………To Loss on sale of equipment a/c $26,000

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