Reference no: EM132546267

Question - Panama Company acquired 60% of Samoa Corporation on 1/2018. Fair values of Samoa's assets and liabilities approximated book values on that date. Panama uses the initial value method to account for its investment in Samoa.

On 1/2019, Panama bought equipment from Samoa for $60,000 that had originally cost Samoa $120,000 and had $ 90,000 of Accumulated depreciation at the time. The equipment had a five-year remaining life and was being depreciated using the straight line method.

You are preparing the worksheet for the 2020 fiscal year.

a. Was this equipment sale upstream or downstream?

b. How much unrealized net gain from the equipment transfer remains at the beginning of 2020?

c. Which company's Retained earnings account will be adjusted in the TA entry in part a? (Which company was the "initiator" of the transaction?)

d. How much excess depreciation will there be in each of the first five years after the transfer?