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Dunn Corporation owns 100 percent of Grey Corporation’s common stock. On January 2, 2017, Dunn sold...

Dunn Corporation owns 100 percent of Grey Corporation’s common stock. On January 2, 2017, Dunn sold to Grey $50,050 of machinery with a carrying amount of $37,750. Grey is depreciating the acquired machinery over a five-year remaining life by the straight-line method. The net adjustments to compute 2017 and 2018 consolidated net income would be an increase (decrease) of

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Answer #1

31/12/2017

Machinery = $50,050

Gain = $ 12,300

Depreciation Expanse = $10,010 ($50,050 ÷5 years)

Net Effect on Income = $2,290

31/12/2018

Depreciation Expanse = $10,010

31/12/2017

Machinery = $37,750

Depreciation = $7,550 ($37,750 ÷ 5)

31/12/2018

Depreciation Expanse = $7,550

Adjustment for consolidation purpose

2017: $2,290 income reduced to $7,550 , Expense (Net income is reduced by $9,840)

2018: $10,010 Expense is reduced to $7,550 Expense (Net Income is increased by $2,460)

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