Question

# On April 1, 2020, Republic Company sold equipment to its wholly owned subsidiary, Barre Corporation, for...

On April 1, 2020, Republic Company sold equipment to its wholly owned subsidiary, Barre Corporation, for \$40,000. At the time of the transfer, the asset had an original cost (to Republic) of \$60,000 and accumulated depreciation of \$25,000. The equipment has a five year estimated remaining life.Barre reported net income of \$250,000, \$270,000 and \$310,000 in 2020, 2021, and 2022, respectively. Republic received dividends from Barre of \$90,000, \$105,000 and \$120,000 for 2020, 2021, and 2022, respectively.

17.        What was the amount of the gain or loss on the sale of equipment reported by Republic on its pre-consolidation income statement in 2020?

a. \$-0-

b. \$ 5,000 gain

c.    \$20,000 loss

d. \$35,000 gain

18.       What was the amount of the credit to depreciation expense on the 2021 consolidation worksheet?

a. \$   750

b.   \$-0-

c.   \$1,000

d.   \$1,600

17. Sale value of asset as on 1st April 2020 = \$40000

Book Value of the asset as on 1st April 2020 = original cost (to Republic) of \$60,000 less accumulated depreciation of \$25,000 = \$35000

Gain on the sale of equipment = \$40000-\$35000 = \$ 5000 gain

18. Credit to depreciation expenses will be zero Because the sale is done to wholly owned subsidiary. There will not be any change in the consolidated worksheet of Republic company in the value of the Assets sold and accumulated depreciation.

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