Milton Co. owned all of the voting common stock of Walker Co. On January 3, 2020, Milton sold equipment to Walker for $140,000. The equipment cost Clemente $165,000. At the time of the transfer, the balance in accumulated depreciation was $45,000. The equipment had a remaining useful life of five years and a $0 salvage value. Both entities use the straight-line method of depreciation.At what amount should the equipment (net of depreciation) be included in the consolidated balance sheet dated December 31, 2020?
A) $96,000.
B) $120,000.
C) $140,000.
D) $144,000.
E) $165,000.

Question

Quizplus · Accepted Answer

The equipment's net book value at the time of sale was $120,000 ($165,000 cost - $45,000 accumulated depreciation). Since the sale was between entities under common control, the equipment should be recorded at its net book value of $120,000. After one year of depreciation ($120,000 / 5 years = $24,000), the net amount is $96,000.

Milton Co Owned All of the Voting Common Stock of Walker