On April 1, 2020, Republic Company sold equipment to its wholly owned subsidiary, Barre Corporation, for...
On April 1, 2020, Republic Company sold equipment to its wholly owned subsidiary, Barre Corporation, for $40,000. At the time of the transfer, the asset had an original cost (to Republic) of $60,000 and accumulated depreciation of $25,000. The equipment has a five year estimated remaining life. Barre reported net income of $250,000, $270,000 and $310,000 in 2020, 2021, and 2022, respectively. Republic received dividends from Barre of $90,000, $105,000 and $120,000 for 2020, 2021, and 2022, respectively. Assume Republic uses the equity method to account for its investment in Barre. What is the balance in the pre-consolidation Income (loss) from Subsidiary account for 2020?
Homework Answers
| Original cost of equipment | $ 60,000 | |
| Less: | Accumulated depreciation | $ 25,000 |
| Book value of equipment | $ 35,000 | |
| Divided by: | Remaining useful life | 5 |
| Annual depreciation | $ 7,000 | |
| Machine transferred on April 1, 2020. Therefore, Depreciation on this machine would be calculated for 9 months. (April to December) | ||
| Actual depreciation on equipment (7000*9/12) | $ 5,250 | |
| Annual depreciation expense reported (40000/5) | $ 8,000 | |
| Machine transferred on April 1, 2020. Therefore, Depreciation on this machine would be calculated for 9 months. (April to December) | ||
| Depreciation expense reported for 9 months (8000*9/12) | $ 6,000 | |
| Less: | Actual depreciation on equipment | $ 5,250 |
| Excess depreciation recorded | $ 750 | |
| Original cost of equipment | $ 60,000 | |
| Less: | Accumulated depreciation | $ 25,000 |
| Book value of equipment | $ 35,000 | |
| Sale of equipment | $ 40,000 | |
| Less: | Book value of equipment | $ 35,000 |
| Gain on sale of equipment | $ 5,000 | |
| Reported net income of Barre (subsidiary) company in 2020 | $ 250,000 | |
| Add: | Eliminate the effect of "Excess depreciation recorded" | $ 750 |
| Less: | Eliminate the effect of "Gain on sale of equipment" | $ (5,000) |
| Balance in the pre-consolidation Income (loss) from Subsidiary account for 2020 | $ 245,750 | |
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