TLC Homecare Ltd. owns 100% of Errand Service for Seniors Ltd. (ESS). On January 2, 20X1, TLC bought 12 identical cars for $300,000. It promptly sold four of the cars to ESS for $112,000. ESS will amortize the cars over five 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.

Question

Quizplus · Accepted Answer

Since ESS will amortize the cars over five years using the straight-line method, the annual amortization amount will be ($112,000/4) $28,000, for a total of $56,000 over the two years. The net adjustment that should be made to accumulated depreciation in TLC's consolidated financial statements would then be $56,000 - ($300,000/5*2) $60,000 = a reduction of $4,800. Therefore, the best choice is C.