_____ On 1/3/06, Sayex (an 80%-owned subsidiary of Payex) sold equipment costing $100,000 to Payex for $45,000. At the time of the sale, the equipment had a book value of $20,000 (having been depreciated using the straight-line method, an original life of 10 years, and no estimated salvage value). Payex continued depreciating the equipment by using the straight-line method but assigned a remaining life of 5 years.
What is the amount of the intercompany profit or loss that must be deferred at 12/31/07-not 12/31/06?

Question

Quizplus · Accepted Answer

The intercompany profit is the difference between the sale price ($45,000) and the book value ($20,000), which is $25,000. By 12/31/07, two years of depreciation have occurred on the $25,000 profit over the 5-year life, deferring $10,000. Thus, $15,000 remains deferred.

_____ on 1/3/06, Sayex (An 80%-Owned Subsidiary of Payex) Sold