Question

1. On January 1, 2017, a subsidiary sold equipment to its parent for $520,000. The subsidiary's original cost was $200,000 and as of January 1, 2017, $20,000 in depreciation had been recorded on the subsidiary's books. At the date of sale, the equipment had a 10-year remaining life, straight-line. It is now December 31, 2021 (5 years since the sale), and the parent still holds the equipment. In the consolidation eliminating entries for 2021, the equipment account (gross cost) is reduced by a net amount of____________

Answer 1

In the consolidation eliminating entries for 2021, the equipment account (gross cost) is reduced by a net amount of $340,000.

Step-by-step explanation:

Given:

Selling cost of equipment = $520,000

Original cost of the equipment = $200,000

Depreciation of asset = $20,000

The net amount of the Equipment = Original cost - Accumulated Depreciation

The net amount = $200,000 - $20,000 = $180,000

The Profit on Sale of the Equipment = Selling cost - The net amount

= $520,000 - $180,000

= $340,000

The equipment account (gross cost) is reduced by a net amount of $340,000 .