a parent company acquires all of a subsidiary's voting stock at the beginning of 2018. at the date of acquisition, the subsidiary's equipment had a book value of $40 million and a fair value of $15 million. the equipment had a 10-year remaining life, straight-line. consolidation eliminating entry (o), on the consolidation working paper for 2021, has what effect on consolidated depreciation expense?

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04-11-2022
Business

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a parent company acquires all of a subsidiary's voting stock at the beginning of 2018. at the date of acquisition, the subsidiary's equipment had a book value of $40 million and a fair value of $15 million. the equipment had a 10-year remaining life, straight-line. consolidation eliminating entry (o), on the consolidation working paper for 2021, has what effect on consolidated depreciation expense?

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febyyyvaalentina febyyyvaalentina · Answer 1 · 2022-11-08T21:07:55-05:00

The effect on consolidated depreciation expense is credit for $2.5 million.

Effect of depreciation expense means a depreciation expense decrease net income when the asset's cost is placed on the income statement. Depreciation has function to account to reject the value of a fixed asset over time. The formula to calculate about effect of depreciation expense is cost of asset minus salvage value divided by useful life.

Depreciation expense to recorded in subsidiary accounts

$40 million / 10 = $4 million

Depreciation expense to recorded in consolidated accounts

$15 million / 10 = $1.5 million

Effect on consolidated depreciation expense:

$4 million - $1.5 million = 2.5 million

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