Linville Ltd.owns 80% of the outstanding shares of Chance Co.On January 2,20X1,Chance sold a machine to Linville for $270,000.Chance recorded a $45,000 gain on the sale.At the time of the sale,the machine had a remaining useful life of 3 years.Both companies use the straight-line method of amortization.What amount should be shown for amortization on Linville's consolidated statement of comprehensive income at December 31,20X1?

Question

Quizplus · Accepted Answer

The gain on the sale of the machine ($45,000) should be eliminated in consolidation. The machine's remaining useful life is 3 years, so the gain is amortized over this period. The annual amortization of the gain is $15,000 ($45,000 / 3 years). Linville's amortization expense on the consolidated statement should reflect the original amortization plus the elimination of the gain, which is $75,000 ($90,000 - $15,000).