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.
What is the net effect on consolidated net income in 2012 due to the equipment transfer?
A) Increase $2,000.
B) Decrease $12,000.
C) Decrease $10,000.
D) Decrease $14,000.
E) Increase $10,000.

Question

Quizplus · Accepted Answer

Unrealized Gain on Transfer $12,000 - Amortization of Gain for First yr. $2,000 = $10,000 Decrease in Net Income for 2012

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