Would appreciate any help on this problem Problem2: On January 1, 2012, Smeder C

Question

Would appreciate any help on this problem

Problem2: On January 1, 2012, Smeder Company, an 80% owned subsidiary of Collins, Inc. transferred equipment with a 10-year life (six of which remain with no salvage value) to Collins in exchange for $84,000 cash. At the date of transfer, Smeder's records carried the equipment at a historical cost of $120,000 less accumulated depreciation of $48,000. Straight-line depreciation is used. Smeder reported net income of $28,000 for 2012 and 2013, respectively.

Prepare the consolidation entries related to the equipment for year 2012 and year 2013 (14pts)

Explanation / Answer

In the books of Smeder

(a) Bank a/c dr 84000

to Equipment 72000 (120000 - 48000)

  to profit on sale of fixed assets 12000

Net Income in 2012 28000

Less profit on sale of fixed assets 12000

Net Operating Income 14000

In the Books of Collins

2012

Equipment a/c dr 84000

to cash 84000

Depreciation a/c dr 14000

to Equipment 14000

2013

Depreciation a/c dr 14000

to Equipment 14000

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