Question

Check my work 3 Problem 5-23 (LO 5-7) Padre holds 100 percent of the outstanding shares of Sonora. On January 1, 2016, Padre transferred equipment to Sonora for $124,000. The equipment had cost $153.000 originally but had a $63,000 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. eBook 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.) Print Merences view transaction list Consolidation Worksheet Entries Prepare Entry *TA to adjust to the 1/1/2018 balances for the consolidated entity. Note: Enter debits before credits Debit Accounts Transaction Credit Retained earnings l'Equipment

Answer 1

Explanation: Individual records based on transfer price 12/31/16 Equipment= $124,000 Gain on transfer = $61,000 ($124,000 - $63,000) Depreciation expense = $24,800 ($124,000 + 5 years) Accumulated depreciation = $19,000 12/31/17 Depreciation expense = $24,800 Accumulated depreciation = $49,600 (2 years) 12/31/18 Effect on retained earnings, 1/1/18 = $11,400 credit balance (gain less two years depreciation Depreciation expense = $24,800 Accumulated depreciation = $74,400 (3 years)

Consolidated reporting based on historical cost 12/31/16 Equipment = $153,000 Depreciation expense = $12,500 ($63,000 : 5 years) Accumulated depreciation = $102,600 ($90,000+ $12,600) 12/31/17 Depreciation expense = $12,600 Accumulated depreciation = $115,200 ($102,600 + $12,600) 12/31/18 Effect on retained earnings, 1/1/15 = ($25,200) (two years depreciation) Depreciation expense = $12,600 Accumulated depreciation = $127,800 ($115,200 + $12,600) Entry *TA Equipment ($153,000 - $124,000) = $29,000 Accumulated depreciation ($115,200-$49,600) = $65,600 To adjust beginning of year amounts to balances for consolidated entity. Retained earnings adjustment reduces $11,400 credit balance to $25,200 debit balance as computed above. Entry ED To remove excess depreciation for current year to reflectan allocation of the historical cost ($12,600) rather than the transfer price ($24,800).

Transaction Credit Accounts Retained Earnings Equipment Accumulated Depreciation Debit $36,600 $29,000 | $ 65,600 Transaction Accounts 2. Accumulated Depreciation | Depreciation Expense Debit $12,200 Credit $12,200