_____ On 1/2/06, Poxey sold equipment costing $100,000 to Soxey (a 100%-owned subsidiary) for $48,000. At the time of the sale, the equipment had been depreciated $40,000 (over a 10-year life using straight-line depreciation). Soxey continued depreciating the equipment by using the straight-line method over a remaining life of 6 years.
What is the amount of the intercompany profit or loss that must be deferred at 12/31/07-not 12/31/06?

Question

Quizplus · Accepted Answer

The intercompany profit or loss is calculated by taking the difference between the book value of the equipment at the time of sale and the sale price. The book value was $60,000 ($100,000 cost - $40,000 accumulated depreciation). The sale price was $48,000, resulting in a loss of $12,000. By 12/31/07, two years of depreciation have been taken by Soxey, reducing the deferred loss by $4,000 per year ($12,000/6 years), leaving $8,000 to be deferred.

_____ on 1/2/06, Poxey Sold Equipment Costing $100,000 to Soxey