American Company acquired 80 percent of the voting common stock of California Co

Question

American Company acquired 80 percent of the voting common stock of California Compamy. At of 2016, American Company sold equipment that had a book value of $25,000 to $30,000. The equipment had a remaining useful life of 5 years and zero salvage the straight line method of depreciation for their equipment. California Company value. Both companies use Which of the following entries is required in the consolidation worksheet for 2016 to sale of equipment? 8. eliminate the gains on Debit Retained Earnings-American Company $5,000, Credit Equipment Debit Retained Earnings-American Company $4,000, Debit Retained $1,000, Credit Equipment $5,000 Debit Gain on sale of Equipment $5,000, Credit Equipment $5,000 None of these. a. b. Earnings- California Company c. d. 9. In the consolidation worksheet for 2016, what will be the adjustment to the "Depreciation Expense- Equipment" account? a. b. c. d. Credit $6,000 Credit $1,000 Credit $5,000 None of these 10. In the consolidation worksheet for 2018, what will be the adjustment to the "Retained Earnings - American Company" account? a. Debit $3,000 b. Debit $2,000 c. Debit $5,000 d. Debit $2,400 e. Debit $1,600 Which of the following is true about the gains on the sale of equipment from American Company to California Company? 11. a. It will be realized gradually over time as the equipment is used by California Company. b. c. d. It can be realized in the future if California Company sells the equipment to outsiders. None of these. Both A and B ms

Explanation / Answer

Answer to 8 is "C"

as the Equipment has been sold in the begining of the year where the asset value is 25000. So unrealized gain is 30,000-25,000=5,000

Answer to 9 is "A" The journal entry will be-

Depreciation A/c Dr. 6,000

Accumulated Depreciation A/c Cr. 6,000

The Value of Equipment- 30000/5

Answer to 11 is "D"

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