Plesco Corporation acquired 80 percent of Slesco Corporation's voting common stock on January 1,20X7.On January 1,20X8,Plesco received $350,000 from Slesco for equipment Plesco 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 equipment recorded by Plesco for 20X8 is:

Question

Quizplus · Accepted Answer

Plesco sold the equipment to Slesco for $350,000 in 20X8, which is $50,000 less than the original cost of $400,000. The book value of the equipment at the time of sale would have been $400,000 - (3 years of depreciation at $40,000 per year) = $280,000. Therefore, Plesco would recognize a gain on sale of $350,000 - $280,000 = $70,000.

Plesco Corporation Acquired 80 Percent of Slesco Corporation's Voting Common