Dalton Corp

question 99

Multiple Choice

Dalton Corp. owned 70% of the outstanding common stock of Shrugs Inc. On January 1, 2011, Dalton acquired a building with a ten-year life for $420,000. No salvage value was anticipated and the building was to be depreciated on the straight-line basis. On January 1, 2013, Dalton sold this building to Shrugs for $392,000. At that time, the building had a remaining life of eight years but still no expected salvage value. In preparing financial statements for 2013, how does this transfer affect the calculation of Dalton's share of consolidated net income?

• A) Consolidated net income must be reduced by $44,800.
• B) Consolidated net income must be reduced by $50,400.
• C) Consolidated net income must be reduced by $49,000.
• D) Consolidated net income must be reduced by $56,000.
• E) Consolidated net income must be reduced by $34,300.

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Definitions:

Net Income

The total profit of a company after all expenses and taxes have been subtracted from revenue.

Revenues

The income generated from normal business operations, calculated by multiplying the price of goods or services by the quantity sold.

Dividends Payable

A liability account in a company's balance sheet indicating the amount in dividends that the company owes to its shareholders but has not yet paid out.

Operating Expenses

Expenses incurred from a company's operational activities, excluding the cost of goods sold, taxes, and interest expenses.