question archive Plesco Corporation acquired 80 percent of Slesco Corporation's voting common stock on January 1, 20X7
Plesco Corporation acquired 80 percent of Slesco Corporation's voting common stock on January 1, 20X7
Subject:AccountingPrice:3.87 Bought7
Plesco Corporation acquired 80 percent of Slesco Corporation's voting common stock on January 1, 20X7. On January 1, 20X8, Plesco received $350,000 from Slesco for equipment Plesco had purchased on January 1, 20X5, for $400,000. The equipment is expected to have a 10-year useful life and no salvage value. Both companies depreciate equipment on a straight-line basis.
Based on the preceding information, in the preparation of consolidation entries related to the equipment transfer for the 20X8 consolidated financial statements, net effect on accumulated depreciation will be:
| a decrease of $50,000. |
| an increase of $110,000. |
| a decrease of $160,000. |
| an increase of $120,000. |
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Answer:
The correct option is B an increase of $110000.
Explanation:
| The sale of asset from subsidiary to holding does not have any impact in the accumulated depreciation account of consolidated balance sheet as we would do the necessary elimination of inter company transactions. While consolidating the two, accumulated depreciation will be increased by $135,000 |
| Cost of the asset = 400,000 |
| Life = 10 Years |
| Depreciation per annum = 400,000/10 = 40,000 |
| For three years (2005 thru 2007) - .Accumulated depreciation would have been $120000 |
| At the time of sale, the accumulated depreciation was reduced by $120000 |
| For the year 2009, the depreciation charged by Mortar is 350,000/7 (Cost to Plesco/ Remaining useful life) = 50000 |
| The excess depreciation (50,000-40,000) = 10,000 should be eliminated. |
| Accumulated depreciation was 120,000 less excess depreciation = 120,000-10,000 = 110,000 should be eliminated, in other words A/D will go up by 110,000 while consolidating. |
