In January 2008, S Company, an 80% owned subsidiary of P Company, sold equipment to P Company for $990,000.S Company's original cost for this equipment was $1,000,000 and had accumulated depreciation of $100,000.P Company continued to depreciate the equipment over its 9 year remaining life using the straight-line method.This equipment was sold to a third party on January 1, 2014 for $720,000.What amount of gain should P Company record on its books in 2014?
A)$30,000.
B)$60,000.
C)$120,000.
D)$180,000.

Question

Quizplus · Accepted Answer

Since S Company sold the equipment to P Company for $990,000, there was a loss of $10,000 for S Company ($1,000,000 original cost - $100,000 accumulated depreciation - $990,000 selling price). 
When P Company sold the equipment to a third party for $720,000, they needed to calculate their gain or loss on the sale. 
P Company had a carrying value for the equipment of $891,000 ($990,000 purchase price - $99,000 accumulated depreciation). 
Since P Company received $720,000 for the sale, there was a loss of $171,000 ($891,000 carrying value - $720,000 selling price). 
Therefore, P Company should record a loss of $60,000 ($171,000 loss - $111,000 loss already recognized by S Company) on its books in 2014.

In January 2008, S Company, an 80% Owned Subsidiary of P