On January 1, 2012, Smeder Company, an 80% Owned Subsidiary

question 44

Multiple Choice

On January 1, 2012, 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 2012 and 2013, respectively. All net income effects of the intra-entity transfer are attributed to the seller for consolidation purposes.
What is the net effect on consolidated net income in 2012 due to the equipment transfer?

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

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Definitions:

Choledochotomy

A surgical incision into the common bile duct, often performed to remove gallstones or to relieve bile duct obstruction.

Catabolism

The breakdown of complex molecules in living organisms to form simpler ones, together with the release of energy; destructive metabolism.

Small Intestine

A part of the gastrointestinal tract between the stomach and large intestine, where most of the end absorption of nutrients takes place.

Jejunum

The middle section of the small intestine in humans and most mammals, lying between the ileum and the duodenum.