Blue Company owns 70 percent of Black Company's outstanding common stock.On December 31,2008,Black sold equipment to Blue at a price in excess of Black's carrying amount,but less than its original cost.On a consolidated balance sheet at December 31,2008,the carrying amount of the equipment should be reported at:

Question

Quizplus · Accepted Answer

When a consolidated balance sheet is prepared, intra-company transactions must be eliminated. In this case, Blue Company (the parent company) and Black Company (the subsidiary company) have a transaction where Black sold equipment to Blue. Since Blue owns 70 percent of Black, this is considered an intra-company transaction and must be eliminated.

The carrying amount of the equipment on the consolidated balance sheet should be reported at Blue's original cost less Black's recorded gain. This eliminates the gain recognized by Black on the sale of the equipment to Blue, but still reflects the original cost of the equipment to Blue. Therefore, the correct answer is C.

Blue Company Owns 70 Percent of Black Company's Outstanding Common