In January 2013, S Company, an 80% owned subsidiary of P Company, sold equipment to P Company for $1,980,000. S Company's original cost for this equipment was $2,000,000 and had accumulated depreciation of $200,000. 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, 2017 for $1,440,000. What amount of gain should P Company record on its books in 2017?
A) $60,000.
B) $120,000.
C) $240,000.
D) $360,000.

Question

Quizplus · Accepted Answer

P Company should record a gain of $120,000. The equipment's book value at the time of sale to the third party was $1,320,000 ($1,980,000 - ($1,980,000/9 * 4)). The sale price was $1,440,000, resulting in a gain of $120,000 ($1,440,000 - $1,320,000).

In January 2013, S Company, an 80% Owned Subsidiary of P