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Black Ltd. owns all of the outstanding shares of White Inc. On January 1, Year 5,...

Black Ltd. owns all of the outstanding shares of White Inc. On January 1, Year 5, White sold equipment to Black and recorded a before-tax profit of $20,000 on the transaction. (White’s tax rate is 40 percent.) Black is depreciating this equipment over five years, using the straight-line method. The net adjustments to calculate the Year 5 and Year 6 consolidated net income attributable to Black’s shareholders would be an increase of how much?

Multiple Choice

  • Year 5: $9,600

    Year 6: $2,400

  • Year 5: $20,000

    Year 6: $0

  • Year 5: $16,000

    Year 6: $4,000

  • Year 5: $20,000

    Year 6: $4,000

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