ABC Ltd. sells a machine to its 80% owned subsidiary XYZ co on 1/1/2015. the ori
ID: 2565350 • Letter: A
Question
ABC Ltd. sells a machine to its 80% owned subsidiary XYZ co on 1/1/2015. the original cost of the machine was $50,000 and at the date of transfer accumulated depreciation of $20,000. the transfer price was $40,000 and the machine had a remaining life of 5 years. ABC originally paid $400,000 for its 80% ownership in XYZ co on 1/1/2014 and any excess fair value was attributed to goodwill. XYZ posted net income of $30,000 and dividends of $10,000 in 2014 and net income of $60,000 and dividends of $30,000 in 2015. make the ta and ed entries for 2015 and *ta for 2016. also calculate the investment account balance at 12/31/2015. TA, ED, and *TA are the consolidating entries
Explanation / Answer
Consolidation Journal Description Debit Credit Entry TA (2015) Gain on Sale of Machine $10,000 Machine $10,000 To Accunlated Depreciation $20,000 (Entry to remove unrealized gain and return asset to historical cost) ED entries Accumlated Depreciation $2,000 To Depreciation Expense $2,000 (Entry to remove excess depreciation charged) *TA Entries Equipment $10,000 Investment in Subsidiary $10,000 to Accumlated Depreciation $20,000 (Entry to record adjustment to downstream asset transfer in year following year of transfer) In the books of XYZ Consolidation Worksheet Adjustment Equipment $40,000 $50,000 $10,000 Accumlated Dep ($8,000) ($26,000) ($18,000) Depreciation Expense $8,000 6000 ($2,000) Investment Account $40,000 $30,000 $10,000 Particulars USD Investment Cost $400,000 Share in income of XYZ $24,000.0 Less Dividend ($8,000.0) Bal as on 31.12 .2014 $416,000 Share in income of XYZ $48,000.0 Less Dividend ($24,000.0) Bal as on 31.12 .2015 $440,000.0