Clemente Co. owned all of the voting common stock of Snider Co. On January 2, 20

Question

Clemente Co. owned all of the voting common stock of Snider Co. On January 2, 2010, Clemente sold equipment to Snider for $125,000. The equipment had cost Clemente $140,000. At the time of the sale, the balance in accumulated depreciation was $40,000. The equipment had a remaining useful life of five years and a $0 salvage value. Straight-line depreciation is used by both Clemente and Snider. 12. At what amount should the equipment (net of depreciation) be included in the consolidated balance sheet dated December 31, 2010? A. $105,000. B. $100,000. C. $95,000. D. $80,000. E. $85,000 13. At what amount should the equipment (net of depreciation) be included in the consolidated balance sheet dated December 31, 2011? A. $110,000. B. $105,000. C. $100,000. D. $90,000. E. $60,000.

Explanation / Answer

12.$80,000.

SInce all of the stock is held by Clemente Co.

the equipment is to be carried at original cost less accumulated depreciation.

here,

original cost = $140,000

less: accumulated depreciation = $40,000

beginning book value = ($140,000 - $40,000)=>$100,000.

annual depreciation = (book value - salvage value) / number of years of life remaining

=>($100,000 - $0) / 5

=>$20,000.

value on december 31, 2010 =>$100,000 - $20,000

=>$80,000.

13th question:

E.$60,000.

value as on december 31,2011 => book value at the beginning of 2011 - annual depreciation

=>$80,000 - $20,000

=>$60,000.

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