SLB transfer $8k of its inventory to its subsidiary Company B. Company B have a

Question

SLB transfer $8k of its inventory to its subsidiary Company B. Company B have a plan to use that inventory in the following months for its operation. Company B has never sold this inventory before in the past. How does Company B record this transaction?*

A. Dr. Inventory; Cr. LoanB. Dr. Expense; Cr. Intercompany payableC. Dr. Prepaid asset; Cr. Accrual ExpenseD. Dr. Inventory; Cr. Intercompany payable

Company XYZ buys a piece of machinery with a useful life of 10 years on January 1, 2002 for $200,000 and depreciates it using the STRAIGHT-LINE METHOD OF DEPRECIATION for 3 years before selling it at the end of the year in 2004 for $150,000.*

GBV = Gross Book Value

Explanation / Answer

1) Company B record the transaction as:

Debit Inventory $8000

Credit Intercompany Payable $8000

(being Assets are being debited and liabilities are being recognised by Crediting the intercompany payable)

2) Profit on the sale of Machinery =Sale price $150000 + accumulated depreciation $60000 ie. 200000*3/10 - Purchase price of the machinery $200,000 = $10,000

recording of the transaction =

Debit cash $150000

Debit accumulated depreciation $60000

Credit Machinery $200000

Credit Profit on the sale of machinery $10000

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