11. (TCO 3) Clue Co. owned all of the voting common stock of Snow Co. On January
ID: 2426765 • Letter: 1
Question
11. (TCO 3) Clue Co. owned all of the voting common stock of Snow Co. On January 2, 20x1, Clue sold some equipment to Snow for $125,000. The equipment had cost $140,000. At the time of the sale, the balance in accumulated depreciation was $40,000. The equipment had a remaining useful life of 5 years and a $0 salvage value. Straight-line depreciation is used by both Clue and Snow. At which amount should the equipment (net of depreciation) be included on the consolidated balance sheet dated December 31, 20x1? (Points : 5)
a.$100,000
b.$95,000
c.$75,000
d.$80,000
e.$85,000
Explanation / Answer
at individual financial statements it will be recorded at a cost of $125,000
but at the time of preparing consolidated financial statements, the uearned income will be adjust as
Dr-Consolidated retained earning ($125,000--$100,000) $25,000
Cr-Property, plant and equipment $25,000
so net effect is =$125,000-$25,000=$100,000
Answer is a.$100,000
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