TLC Homecare Ltd.owns 100% of Errand Service for Seniors Ltd.(ESS).At January 2,20X1,TLC bought 12 identical cars for $300,000.It promptly sold 4 of the cars to ESS for $112,000.ESS will amortize the cars over 5 years using the straight-line method.At December 31,20X2,what is the net adjustment that should be made to accumulated depreciation in TLC's consolidated financial statements? Ignore income taxes.

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Quizplus · Accepted Answer

The intercompany sale of cars results in a profit that needs to be eliminated in consolidation. The profit on the sale is $112,000 - ($300,000/12 * 4) = $12,000. The cars are amortized over 5 years, so $12,000/5 = $2,400 per year. For two years, the total adjustment is $2,400 * 2 = $4,800.