Question

Mortar Corporation acquired 80 percent of Granite Corporation's voting common stock on January 1, 20X7. On December 31, 20X8, Mortar received $390,000 from Granite for equipment Mortar had purchased on January 1, 20X5, for $400,000. The equipment is expected to have a 10-year useful life and no salvage value. Both companies depreciate equipment on a straight-line basis.Based on the preceding information, in the preparation of consolidation entries related to the equipment transfer for the 20X9 consolidated financial statements, the net effect on accumulated depreciation will be:a. an increase of $160,000.b. an increase of $135,000.c. a decrease of $135,000.Sky Corporation owns 75 percent of Earth Company's stock. On July 1, 20X8, Sky sold a building to Earth for $33,000. Sky had purchased this building on January 1, 20X6, for $36,000. The building's original eight-year estimated total economic life remains unchanged. Both companies use straight-line depreciation. The equipment's residual value is considered negligible.Based on the information provided, while preparing the 20X8 consolidated income statement, depreciation expense will be:a. debited for $750 in the consolidating entries.b. credited for $750 in the consolidating entries.c. debited for $1,500 in the consolidating entries.

Answer 1

Following are the solution to this question:

Step-by-step explanation:

In point a:

Its purchase of assets by a subsidiary to keep does not affect the accumulated depreciation accounts of the balance sheet as we will do the requisite removal of intracompany transactions, while consolidating the two, accumulated deflation will be raised by $135,000

Asset costs = 400,000

10 Days of Existence

Yearly
`= (400,000)/(10) = 40,000`

In four years (2005 to 2008) - $160,000 would've been a value regarding.

The accumulated loss was reduced by $160,000 when this was sold.

In the year 2009,
`(390,000)/(6) = 65,000` are paid for the depletion of Mortar.

The depletion surplus
`(65,000-40,000)` is to become removed
`= 25,000`.

Tax due should be removed from 160,000 fewer excess depreciation
`=160,000-25,000=135,000`, i.e. 135,000 when consolidating.

In point b:

Planet depreciation = 33,000/5.5/2 (Earth expense /2) = 3000 Planet depreciation.

Sky would've had bee = 36 000/8/2 = 2,250 Half a year of deterioration

The crediting of depletion costs for consolidating entries eliminates the additional depreciation of $750 (3,000-2,250).