_____ On 1/2/06, Palex sold equipment costing $100,000 to its 100%-owned subsidiary, Salex, for $75,000. At the time of the sale, the equipment had been 60% depreciated (using the straight-line method and an assigned life of 10 years). Salex continued depreciating the equipment by using the straight-line method but assigned a remaining life of 5 years.
What are the cost and accumulated depreciation, respectively, of this equipment in the 12/31/06 consolidated balance sheet?

Question

Quizplus · Accepted Answer

The cost of the equipment remains at the original cost of $100,000 in the consolidated balance sheet because intercompany transactions are eliminated in consolidation. The accumulated depreciation is $68,000 because the equipment was 60% depreciated at the time of sale ($60,000), and an additional $8,000 of depreciation is recognized for the year ($75,000 purchase price / 5-year remaining life = $15,000 annual depreciation; $15,000 / 2 = $7,500 for half a year, rounded to $8,000 for simplicity).

_____ on 1/2/06, Palex Sold Equipment Costing $100,000 to Its