Padre holds 100 percent of the outstanding shares of Sonora. On January 1, 2016,

Question

Padre holds 100 percent of the outstanding shares of Sonora. On January 1, 2016, Padre transferred equipment to Sonora for $100,000. The equipment had cost $141,000 originally but had a $51,000 book value and five-year remaining life at the date of transfer. Depreciation expense is computed according to the straight-line method with no salvage value. Consolidated financial statements for 2018 currently are being prepared. What worksheet entries are needed in connection with the consolidation of this asset? Assume that the parent applies the partial equity method. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Explanation / Answer

Transactions

General journal

Debit

Credit

*TA

1

Retained Earnings

29400

Equipment

41000

Accumulated Depreciation

70400

*ED

2

Accumulated Depreciation

9800

Depreciation Expense

9800

Explanation:

Individual records based on transfer price

12/31/16

Equipment = $100000

Gain on transfer = $49000 ($100000 – $51000)

Depreciation expense = $20000 ($100000 ÷ 5 years)

Accumulated depreciation = $20000

12/31/17

Depreciation expense = $20000

Accumulated depreciation = $40000 (2 years)

12/31/18

Effect on retained earnings, 1/1/18 = $9000 ($49000 - $40000) credit balance

Depreciation expense = $20000

Accumulated depreciation = $60000 (3 years)

Consolidated reporting based on historical cost

12/31/16

Equipment = $141000

Depreciation expense = $10200 ($51000 ÷ 5 years)

Accumulated depreciation = $100200 ($90000 + $10200)

12/31/17

Depreciation expense = $10200

Accumulated depreciation = $110400 ($100200 + $10200)

12/31/18

Effect on retained earnings, 1/1/18 = ($20400) (two years depreciation)

Depreciation expense = $10200

Accumulated depreciation = $120600 ($110400 + $10200)

Entry *TA Equipment ($141000 – $100000) = $41000

Accumulated depreciation ($110400 – $40000) = $70400

To adjust beginning of year amounts to balances for consolidated entity. Retained earnings adjustment reduces $9000 credit balance to $20400 debit balance as computed above.

Entry ED

To remove excess depreciation for current year to reflect an allocation of the historical cost ($10200) rather than the transfer price ($20000).

Transactions

General journal

Debit

Credit

*TA

1

Retained Earnings

29400

Equipment

41000

Accumulated Depreciation

70400

*ED

2

Accumulated Depreciation

9800

Depreciation Expense

9800

Related Questions

Navigate

• Browse (All)
• Browse P
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.