On January 1, 2020, Smeder Company, an 80% Owned Subsidiary

question 32

Multiple Choice

On January 1, 2020, Smeder Company, an 80% owned subsidiary of Collins, Inc., transferred equipment with a 10-year life (six of which remain with no salvage value) to Collins in exchange for $84,000 cash. At the date of transfer, Smeder's records carried the equipment at a cost of $120,000 less accumulated depreciation of $48,000. Straight-line depreciation is used. Smeder reported net income of $28,000 and $32,000 for 2020 and 2021, respectively. All net income effects of the intra-entity transfer are attributed to the seller for consolidation purposes.What is the net effect on net income as a result of consolidating adjustments made in 2020 with respect to the equipment transfer?

• A) Increase net income by $2,000.
• B) Decrease net income by $12,000.
• C) Decrease net income by $10,000.
• D) Decrease net income by $14,000.
• E) Increase net income by $10,000.

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Definitions:

Immediate Feedback

Responses or reactions provided promptly after an action or presentation, allowing for quick adjustments or understanding.

Empathy And Tact

The combination of being able to understand another's feelings and responding in a considerate and effective manner.

Unifying Quality

A characteristic or attribute that brings or holds elements together in a coherent or cohesive manner.

Closing Sentence

The final sentence in a paragraph or document, meant to provide a sense of conclusion or sum up the main idea.