Please choose only the correct answer Question 10 (7 points) Parent Company owns

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Please choose only the correct answer

Question 10 (7 points) Parent Company owns all of the outstanding shares of Son Company. On January 1, Year One, Parent transfers a building to Son for its fair value of $400,000. At that date, Parent was reporting this building at a net book value of S320,000 with no residual value and a remaining life of ten years. In taking the individual records of these two companies at the end of Year One and turning them into consolidated statements, what is the impact on net income created by this transfer? Question 10 options A) There is no impact when consolidated net income is computed. B) A reduction of $80,000 is made to arrive at consolidated net income C C) A reduction of $72,000 is made to arrive at consolidated net income. D) A reduction of $48,000 is made to arrive at consolidated net income

Explanation / Answer

D=48000

parents tranferd building to son at $400000 which has book value of $320000

at time of consolidation depreciation is caluculated on book value WDV because it is not a sale just a transfer from parent to son

increased income while transfer is $80000. we have t deduct depreciation for the amount of (320000/10) $32000

a reduction of 48000 (80000-32000) to arrive at consolidated net income

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