question archive Pluto Corporation owns 70 percent of Saturn Company's stock
Pluto Corporation owns 70 percent of Saturn Company's stock
Subject:AccountingPrice:2.87 Bought7
Pluto Corporation owns 70 percent of Saturn Company's stock. On July 1, 20X4, Pluto sold a piece of equipment to Saturn for $56,350. Pluto had purchased this equipment on January 1, 20X1, for $63,000. The equipment's original 15-year estimated total economic life remains unchanged. Both companies use straight-line depreciation. The equipment's residual value is considered negligible. Based on the information provided, the gain on the sale of the equipment eliminated in the consolidated financial statements for 20X4 is ?
a. 8.050
b.10.150
c. 14.700
d. 5.950
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Answer:
Depreciation under Straight line method = (Cost - Residual value) / Estimated useful life
= ($63,000 - $0) / 15
= $4,200
Accumulated depreciation for 3.5 years = $4,200 * 3.5 = $14,700
Carrying value = Cost - Accumulated depreciation
= $63,000 - $14,700
= $48,300
Gain = Sale price - Carrying value
= $56,350 - $48,300
= $8,050
The answer is Option a.
