On January 1,2011,Bigg Corporation sold equipment with a book value of $20,000 and a 10-year remaining useful life to its wholly-owned subsidiary,Little Corporation,for $30,000.Both Bigg and Little use the straight-line depreciation method,assuming no salvage value.On December 31,2011,the separate company financial statements held the following balances associated with the equipment: A working paper entry to consolidate the financial statements of Bigg and Little on December 31,2011 included a

Question

On January 1,2011,Bigg Corporation sold equipment with a book value of $20,000 and a 10-year remaining useful life to its wholly-owned subsidiary,Little Corporation,for $30,000.Both Bigg and Little use the straight-line depreciation method,assuming no salvage value.On December 31,2011,the separate company financial statements held the following balances associated with the equipment:  A working paper entry to consolidate the financial statements of Bigg and Little on December 31,2011 included a

Quizplus · Accepted Answer

When a parent company sells equipment to a subsidiary, any gain or loss on the sale must be eliminated in consolidation. In this case, Bigg sold the equipment for $10,000 more than its book value. This is a gain for Bigg, but since Bigg and Little are now part of the same consolidated entity, this gain is eliminated. The elimination is done by decreasing the equipment account on the consolidated balance sheet by $20,000 (the book value of the equipment), and increasing the accumulated depreciation account by $1,000 (the depreciation expense for one year). Therefore, the correct answer is a debit to accumulated depreciation for $1,000.

On January 1,2011,Bigg Corporation Sold Equipment with a Book Value