_____ On 1/2/06, Poxey sold equipment costing $100,000 to Soxey (a 100%-owned subsidiary) for $48,000. At the time of the sale, the equipment had been depreciated $40,000 (over a 10-year life using straight-line depreciation). Soxey continued depreciating the equipment by using the straight-line method over a remaining life of 6 years.
What is the amount of the adjustment to Depreciation Expense in preparing the consolidation worksheet at 12/31/07?

Question

Quizplus · Accepted Answer

The equipment was sold for less than its book value, resulting in a gain on sale of $12,000 ($48,000 - $36,000). This gain is eliminated in consolidation, and the depreciation expense is adjusted to reflect the gain. The adjustment is calculated as follows:Depreciation expense = Gain on sale / Remaining life= $12,000 / 6= $2,000Therefore, the adjustment to Depreciation Expense is a debit of $2,000.

_____ on 1/2/06, Poxey Sold Equipment Costing $100,000 to Soxey