Mortar Corporation acquired 80 percent of Granite Corporation's voting common stock on January 1, 20X7. On January 1, 20X8, Mortar received $350,000 from Granite for equipment Mortar had purchased on January 1, 20X5, for $400,000. The equipment is expected to have a 10-year useful life and no salvage value. Both companies depreciate equipment on a straight-line basis.
Based on the preceding information, the gain on sale of equipment recorded by Mortar for 20X8 is:

Question

Quizplus · Accepted Answer

Mortar recorded a gain of $70,000 on the sale of equipment to Granite. The gain is calculated as the difference between the sales price ($350,000) and the book value of the equipment on Mortar's books ($280,000). The book value is calculated as the original cost of the equipment ($400,000) minus the accumulated depreciation ($120,000).

Mortar Corporation Acquired 80 Percent of Granite Corporation's Voting Common