Pat Corporation acquired 80 percent of Smack Corporation's voting common stock on January 1,20X7.On December 31,20X8,Pat received $390,000 from Smack for equipment Pat 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,the gain on sale of the equipment recorded by Pat for 20X8 is:

Question

Quizplus · Accepted Answer

Pat Corporation recorded a gain of $150,000 on the sale of the equipment to Smack Corporation. This gain is calculated as the difference between the sales price of $390,000 and the book value of the equipment on Pat's books, which is $240,000. The book value of the equipment is calculated as the original cost of $400,000 minus the accumulated depreciation of $160,000.

Pat Corporation Acquired 80 Percent of Smack Corporation's Voting Common