On January 1, 2016, Poe Corp.sold a machine for $900,000 to Saxe Corp., its wholly-owned subsidiary.Poe paid $1,100,000 for this machine.On the sale date, accumulated depreciation was $250,000.Poe estimated a $100,000 salvage value and depreciated the machine on the straight-line method over 20 years, a policy that Saxe continued.In Poe's December 31, 2016, consolidated balance sheet, this machine should be included in cost and accumulated depreciation as
Cost Accumulated Depreciation

Question

On January 1, 2016, Poe Corp.sold a machine for $900,000 to Saxe Corp., its wholly-owned subsidiary.Poe paid $1,100,000 for this machine.On the sale date, accumulated depreciation was $250,000.Poe estimated a $100,000 salvage value and depreciated the machine on the straight-line method over 20 years, a policy that Saxe continued.In Poe's December 31, 2016, consolidated balance sheet, this machine should be included in cost and accumulated depreciation as ​
Cost Accumulated Depreciation

Quizplus · Accepted Answer

For consolidated financial statements, intercompany transactions are eliminated, so the machine should be recorded at its original cost to the parent company, Poe Corp., which is $1,100,000. The accumulated depreciation should include the depreciation before the sale ($250,000) plus one year of depreciation based on the original useful life and salvage value. The annual depreciation is ($1,100,000 - $100,000) / 20 = $50,000. Therefore, the accumulated depreciation at the end of 2016 is $250,000 + $50,000 = $300,000.