Question

On January 1, 2021, Kapoor Co. sold equipment to its subsidiary, Howard Corp., for $125,000. The equipment had cost $150,000, and the balance in accumulated depreciation was $70,000. The equipment had an estimated remaining useful life of eight years and no salvage value. Both companies use straight-line depreciation. On their separate 2021 income statements, Kapoor and Howard reported depreciation expense of $86,000 and $64,000, respectively. The amount of depreciation expense on the consolidated income statement for 2021 would have been:

Answer 1

Answer:

$144,375

Explanation:

Excess depreciation on gain on sale of asset = [($125,000 - ($150,000 - $70,000)] $80,000) / 8

= ($125,000 - $80,000) / 8

= $45,000 / 8

= $5,625

Consolidated depreciation = $86,000 + $64,000 - $5,625

Consolidated depreciation = $144,375

So, the amount of depreciation expense on the consolidated income statement for 2021 would be $144,375