On January 2,2011,Paogo Company sold a truck with book value of $15,000 to Sanall Corporation,its wholly-owned subsidiary,for $20,000.The truck had a remaining useful life of five years with zero salvage value.Both firms use the straight-line depreciation method.If Paogo failed to make year-end adjustments/eliminations on the consolidated working papers in 2011,consolidated depreciation expense for 2011 would be

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The truck was sold at a $5,000 gain, which should be eliminated in consolidation. The depreciation based on the inflated price ($20,000) would be $4,000 per year, but it should be $3,000 based on the original book value ($15,000). Therefore, depreciation expense is $1,000 too high.

On January 2,2011,Paogo Company Sold a Truck with Book Value