Reference no: EM132981213
Question - A summary of the net income of Plain Company and Spicy Company (75% owned subsidiary) for 2020 is as follows:
Plain Company
Sales 500,000
Cost of goods sold (200,000)
Depreciation expense (50,000)
Other expense (80,000)
Net income 170,000
Spicy Company
Sales 300,000
Gain on sale of machinery 10,000
Cost of goods sold (130,000)
Depreciation expense (30,000)
Other expense (40,000)
Net income 110,000
On July 2, 2020, Spicy Company sold a machinery with a book value of 45,000 (50% depreciated) to Plain Company. At the time of the intercompany sale, the machinery had a useful life of five years. Both Plain and Spicy are using the straight line method depreciation. Plain Company used the machinery until December 31, 2022 at which time it was sold another entity for 36,000.
Required -
1. How much is the consolidated depreciation expense in 2020?
a. 84,000 c. 78,000
b. 80,000 d. 76,000
2. How much of the consolidated net income in 2020 is attributable to Plain Company?
a. 248,000 c. 245,000
b. 252,500 d. 280,000
3. How much gain or (loss) on sale of machinery should be recognized by Plain Company in its separate books for 2022?
a. (8,500) c. (13,500)
b. 8,500 d. 13,500
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