Pluto Corporation owns 70 percent of Saturn Company's stock.On July 1,20X4,Pluto sold a piece of equipment to Saturn for $56,350.Pluto had purchased this equipment on January 1,20X1,for $63,000.The equipment's original 15-year estimated total economic life remains unchanged.Both companies use straight-line depreciation.The equipment's residual value is considered negligible.
-Based on the information provided,while preparing the 20X4 consolidated income statement,depreciation expense will be

Question

Quizplus · Accepted Answer

Pluto sold the equipment to Saturn at a gain of $56,350 - $63,000 = $6,650. This gain will be eliminated in consolidation. The depreciation expense for the equipment is $63,000 / 15 years = $4,200 per year. Since Pluto owns 70% of Saturn, the depreciation expense to be eliminated is $4,200 * 70% = $2,940. The depreciation expense to be credited in the consolidation entries is $2,940 - $6,650 = $3,710.

Pluto Corporation Owns 70 Percent of Saturn Company's Stock