On January 1, 2012, Smeder Company, an 80% owned subsidiary of Collins, Inc. transferred equipment with a 10-year life (six of which remain with no salvage value) to Collins in exchange for $84,000 cash. At the date of transfer, Smeder's records carried the equipment at a cost of $120,000 less accumulated depreciation of $48,000. Straight-line depreciation is used. Smeder reported net income of $28,000 and $32,000 for 2012 and 2013, respectively. All net income effects of the intra-entity transfer are attributed to the seller for consolidation purposes.
Compute Collins' share of Smeder's net income for 2012.
A) $12,400.
B) $14,400.
C) $11,200.
D) $12,800.
E) $18,000.

Question

Quizplus · Accepted Answer

2012 Net Income $28,000 - Unrealized Gain on Transfer $12,000 + Amortization of Gain for First yr. $2,000 = $18,000 × .80 = $14,400 Net Income Share to Parent

On January 1, 2012, Smeder Company, an 80% Owned Subsidiary