Question

On January 1, 2021, Kapoor Co. sold equipment to its subsidiary, Howard Corp., for $125,000. The equipment had cost $150,000, and the balance in accumulated depreciation was $70,000. The equipment had an estimated remaining useful life of eight years and no salvage value. Both companies use straight-line depreciation. On their separate 2021 income statements, Kapoor and Howard reported depreciation expense of $86,000 and $64,000, respectively. The amount of depreciation expense on the consolidated income statement for 2021 would have been: Multiple Choice $144,375. $165,625. $150,000. $134,375. $155,625.

Answer 1

The amount of depreciation expense on the consolidated income statement is $144,375

Step-by-step explanation:

The computation of the depreciation expense is shown below:

Excess depreciation arise on gain on sale of asset is

= ($125,000 - $80,000) ÷ 8 years

= $5,625

Now the Consolidated depreciation is

= $86,000 + $64,000 - $5,625

= $144,375

Hence, the amount of depreciation expense on the consolidated income statement is $144,375