A parent owns 80% of its subsidiary. At the beginning of the current year, the parent sells equipment carried on its books at $40,000 to its subsidiary for $50,000. The equipment has a 2-year remaining life, straight-line. What is the effect of the above on equity in net income for the current year, reported on the parent's books, assuming the parent uses the complete equity method?

Question

Quizplus · Accepted Answer

Unconfirmed gain = $50,000 - $40,000 = $10,000
Gain confirmed during the year = $10,000/2 = $5,000
($5,000 - $10,000) = $5,000 decrease

A Parent Owns 80% of Its Subsidiary