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

Question

7. 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

8 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

  What is the GBV at December 2002?: $200,000

at December 2003?: $200,000

at December 2004?: $200,000

9.    What is the NBV at December 2002?:

at December 2003?:

10.    What is the accumulated depreciation at year-end 2004?:

Explanation / Answer

The subsidiary has purchased an inventory from its holding company. Hence the holding company would be considered as an intercompany payable.

Correct entry:

Inventory A/c Dr

To Intercompany payable

Correct choice: D

9) Straight line depreciation = 200000 / 10 = 20000

NBV at December 2002 = 200000 - 20000 = 180000

NBV at December 2003 = 180000 - 20000 = 160000

10) Accumulated depreciation at 2004 end: Straight line depreciation * No of years = 20000 - 3 = 60000

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