Mortar Corporation acquired 80 percent of Granite Corporation's voting common stock on January 1,20X7.On January 1,20X8,Mortar received $350,000 from Granite for equipment Mortar had purchased on January 1,20X5,for $400,000.The equipment is expected to have a 10-year useful life and no salvage value.Both companies depreciate equipment on a straight-line basis.
-Based on the preceding information,in the preparation of the 20X9 consolidated income statement,depreciation expense will be:

Question

Quizplus · Accepted Answer

The equipment was sold for $350,000, which was $50,000 less than its book value of $400,000. The annual depreciation on the equipment is $40,000 ($400,000/10 years). In the consolidated income statement, the depreciation expense needs to be adjusted for the $10,000 excess depreciation taken by Granite due to the inflated book value. Therefore, depreciation expense is credited for $10,000 in the eliminating entries.

Mortar Corporation Acquired 80 Percent of Granite Corporation's Voting Common