Question

Play Inc. owns 100% of Station Corp.'s common stocks. On January 1, 2015, Play sold to Station for $50,000 an equipment with a carrying amount of $30,000. Station is depreciating the equipment over a 5-year life using the straight-line method. Describe the two adjustments and provide the amounts made in 2015 consolidated income statement.

Answer 1

There is unrealised profit on the equioment sold by Play inc to Statetion Corp.

the Adjustment include

• Deduct net unrealised profit of $16,000 from Equipment
• Deduct net unrealised profit of $16,000 from Group(consolidated )retained earnings.

Amount to be recognized as unrealized profit in the consolidated income statement is $16,000

Step-by-step explanation:

Computation of Net unrealized profit

Unrealized profit ( $50,000 - $30,000) 20,000

Depreciation on Unrealized profit( 20,000/5) (4,000)

Net unrealized profit 16,000