Assume a parent company owns a 100% controlling interest in its subsidiary. On January 1, 2022, the Parent company sold fixed assets to it's subsidiary for $900,000 with an estimated remaining useful life of 5 years. The Parent Company had on their books, at the date of sale, the following for these fixed assets: Original Cost 1,250,000 Accumulated Depreciation 375,000 Net Carrying Value 875,000 Prepare the consolidating workpaper journal entries, relating to THE SALE OF THE EQUIPMENT, necessary in 2022.

When parent company sells any assets to subsidiary two situations may arise for profit eliminationwhen assets are transferred at the book value - Since assets are transferred at the book value of parents and vice verca then no adjustment is required for profit elimination because in consolidation the assets will be clubbed at the same book value which exist in parent books or vice versa.When assets are transferred at a price more/less than the book value - In that scenario whatever gain or loss arises on such transfer must be eliminated because the asset is clubbed in consolidated entity. Such an asset must be recorded at original cost in consolidated financial statement.Net carrying value in the books of parent company = 875,000Parent sold the above asset to its subsidiary = 900,000Gain on sale of asset reported by parent = 900,000 - 875,000Gain on sale of asset reported by parent = 25,000 DateParticularDebit CreditJan. 1 2022Cash900000Fixed Assets875000Gain on sale of asset25000(To record sale of asset by parent)Dec. 31 2022Gain on sale of asset25000Fixed Assets25000(To record elimination of profit realized by parent)DateParticularDebit CreditJan. 1 2022Cash900000Fixed Assets875000Gain on sale of asset25000(To record sale of asset by parent)Dec. 31 2022Gain on sale of asset25000Fixed Assets25000(To record elimination of profit realized by parent)

Answered: Assume a parent company owns a 100%…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Assume a parent company owns a 100% controlling interest in its subsidiary.
On January 1, 2022, the Parent company sold fixed assets to it's subsidiary for $900,000 with an estimated remaining useful life of 5 years.

The Parent Company had on their books, at the date of sale, the following for these fixed assets:
Original Cost		1,250,000
Accumulated Depreciation		375,000
Net Carrying Value		875,000

Prepare the consolidating workpaper journal entries, relating to THE SALE OF THE EQUIPMENT, necessary in 2022.

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