On January 1,2010, Smeder Company, an 80% owned subsidiary of Collins, Inc., tra
ID: 2579935 • Letter: O
Question
On January 1,2010, Smeder Company, an 80% owned subsidiary of Collins, Inc., transferred equipment with a 10-year life (six of which remain with no salvage value) to Collins in exchange for $84,000 cash. At the date of transfer, Smeder's records carried the equipment at a cost of $120,000 less accumulated depreciation of S48,000. Straight-line depreciation is used. Smeder reported net income of $28,000 and $32,000 for 2010 and 2011, respectively. All net income effects of the intra-entity transfer are attributed to the seller for consolidation purposes. 16. For consolidation purposes, what net debit or credit will be made for the year 2010 relating to the accumulated depreciation for the equipment transfer? A. Debit accumulated depreciation, $46,000. B. Debit accumulated depreciation, $48,000. C. Credit accumulated depreciation, $48,000. D. Credit accumulated depreciation, $46,000. E. Debit accumulated depreciation, $2,000.Explanation / Answer
Ans: E Debit Accumlated Depreciation $2000
Gain on Sale of Equipment = $84000-(120000-48000)
= $12000
Annual Depreciation recoded by Smeder Co.=$120000/10=$12000
Annual Depreciation recoded by Collins Inc.=$84000/6=$14000
Excess Depreciation Recorded = $14000-12000= $2000