Rollins owns 100% of Felix. Rollins purchased equipment on January 1, 2002 for $100,000. The equipment had a useful life of 10 years and straight line depreciation was used. On January 1, 2009 Rollins sells this equipment to Felix for $80,000. Felix uses a 5 year depreciation life for the equipment and continues to use the equipment through 2010. What is the debit/credit entry to record excess depreciation in 2009? What is the debit/credit entry to record excess depreciation in 2010? What additional entries are needed?
Rollins owns 100% of Felix. Rollins purchased equipment on January 1, 2002 for $100,000. The equipment had a useful life of 10 years and straight line
What is the debit/credit entry to record excess depreciation in 2009?
What is the debit/credit entry to record excess depreciation in 2010?
What additional entries are needed?
Rollins owns 100% of Felix.
Equipment bought on 01/01/2002 Rollins: 100000
Depreciation method used is Straight Line method, with an useful life of 10 years; which means depreciation per year is $10000.
So depreciation for the years 2002 to 2008 (7 years) is $70000 (accumulated depreciation).
On 01/01/2009, the equipment has book value of $30000 ($100000-$70000) which is sold to Felix for $80000, resulting in profit to Rollins of $50000 ($80000-$30000), which is notional as it owns 100% of Felix.
For Felix the Purchase price of the equipment is $80000 as on 01/01/2009, with a useful life of 5 years and it uses Straight Line method of depreciation , which means an annual depreciation of $16000, which thereby leads to excess depreciation of $6000 ($16000-$10000) per year.
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