Belzer Co. owns 70% of Sabo Ltd. At the beginning of 20X7, Sabo sold a piece of equipment to Belzer for a gain of $35,000. At that time, the equipment had an estimated useful life of seven years.
-Ten years later, Belzer is still using the equipment. In preparing its consolidated financial statements, Belzer should credit the equipment account by $35,000. What account(s)should be debited in this journal entry?

Question

Belzer Co. owns 70% of Sabo Ltd. At the beginning of 20X7, Sabo sold a piece of equipment to Belzer for a gain of $35,000. At that time, the equipment had an estimated useful life of seven years. 
-Ten years later, Belzer is still using the equipment. In preparing its consolidated financial statements, Belzer should credit the equipment account by $35,000. What account(s)should be debited in this journal entry?

Quizplus · Accepted Answer

When a piece of equipment is sold between a parent company and its subsidiary, any gains or losses are eliminated in the preparation of consolidated financial statements to avoid double counting. In this case, since Sabo Ltd. sold the equipment to Belzer Co. for a gain of $35,000, this gain should be eliminated by debiting accumulated depreciation (since the equipment has been in use for 10 years) for $35,000 and crediting the equipment account for the same amount. Therefore, the correct answer is D, accumulated depreciation by $35,000.

Belzer Co Owns 70% of Sabo Ltd