Question

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. 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

Answer 1

Republic Company and Barre Corporation

The amount of the gain or loss on the sale of equipment reported by Republic on its pre-consolidation income statement in 2020 is:

= $5,000.

Step-by-step explanation:

a) Data and Calculations:

Original cost of Equipment sold to subsidiary = $60,000

Accumulated depreciation of the equipment = 25,000

Book value of equipment = $35,000

Sales proceeds for the sale of the equipment 40,000

Gain on the sale of the equipment = $5,000

Reported net income of Barre Corporation:

2020 $250,000

2021 $270,000

2022 $310,000

Dividends received by Republic from Barre:

2020 $90,000

2021 $105,000

2022 $120,000