Zeus Ltd Owns 100% of the Issued Capital of Ares

question 18

Multiple Choice

Zeus Ltd owns 100% of the issued capital of Ares Ltd.On 1 July 2015,Zeus Ltd purchased an item of equipment from Ares Ltd for $800 000.Ares had owned the equipment for 2 years.It originally cost $890 000 and the accumulated depreciation was $178 000 at the time of sale.The equipment has been depreciated over this time,but not written down or revalued.The remaining useful life of the equipment at 1 July 2015 is estimated to be 8 years.Zeus Ltd expects the benefits to be obtained from the equipment to be evenly received over its useful life.The tax rate is 30%. What are the consolidation journal entries required for this inter-company transaction for the period ended 30 June 2016?

• A)
• \[\begin{array} { | c | l | r | r | }
• \hline \mathrm { Dr } & \text { Gain on sale of equipment } & 88000 & \\
• \hline \mathrm { Dr } & \text { Equipment } & 90000 & \\
• \hline \mathrm { Cr } & \text { Accumulated depreciation—equipment } & & 178000 \\
• \hline & & & \\
• \hline \mathrm { Dr } & \text { Deferred tax asset } & 26400 & \\
• \hline \mathrm { Cr } & \text { Income tax expense } & & 26400 \\
• \hline & & & \\
• \hline \mathrm { Dr } & \text { Accumulated depreciation } & 11000 & \\
• \hline \mathrm { Cr } & \text { Depreciation expense } & & 11000 \\
• \hline & & & \\
• \hline \mathrm { Dr } & \text { Income tax expense } & 3300 & \\
• \hline \mathrm { Cr } & \text { Deferred tax asset } & & 3300 \\
• \hline
• \end{array}\]
• B)
• \[\begin{array} { | c | l | r | r | }
• \hline \mathrm { Dr } & \text { Gain on sale of equipment } & 88000 & \\
• \hline \mathrm { Dr } & \text { Equipment } & 88000 & \\
• \hline \mathrm { Cr } & \text { Accumulated depreciation—equipment } & & 176000 \\
• \hline & & & \\
• \hline \mathrm { Dr } & \text { Deferred tax asset } & 26400 & \\
• \hline \mathrm { Cr } & \text { Opening retained earnings } & & 26400 \\
• \hline & & & \\
• \hline \mathrm { Dr } & \text { Accumulated depreciation } & 11000 & \\
• \hline \mathrm { Cr } & \text { Opening retained earnings } & & 11000 \\
• \hline & & & \\
• \hline \mathrm { Dr } & \text { Opening retained earnings } & 3300 & \\
• \hline \mathrm { Cr } & \text { Deferred tax asset } & & 3300 \\
• \hline
• \end{array}\]
• C)
• \[\begin{array} { | c | l | r | r | }
• \hline \mathrm { Dr } & \text { Sales } & 270000 & \\
• \hline \mathrm { Cr } & \text { Cost of goods sold } & & 270000 \\
• \hline & & & \\
• \hline \mathrm { Dr } & \text { Cost of goods sold } & 17500 & \\
• \hline \mathrm { Cr } & \text { Purchases } & & 17500 \\
• \hline & & & \\
• \hline \mathrm { Dr } & \text { Income tax expense } & 5250 & \\
• \hline \mathrm { Cr } & \text { Deferred income tax asset } & & 5250 \\
• \hline & & & \\
• \hline \mathrm { Dr } & \text { Opening retained earnings } & 49000 & \\
• \hline \mathrm { Cr } & \text { Closing retained earnings } & & 49000 \\
• \hline & & & \\
• \hline \mathrm { Dr } & \text { Purchases } & 29400 & \\
• \hline \mathrm { Cr } & \text { Cost of goods sold } & & 29400 \\
• \hline & & & \\
• \hline \mathrm { Dr } & \text { Income tax expense } & 8820 & \\
• \hline \mathrm { Cr } & \text { Deferred income tax asset } & & 8820 \\
• \hline
• \end{array}\]
• D)
• \[\begin{array} { | c | l | r | r | }
• \hline \mathrm { Dr } & \text { Gain on sale of equipment } & 88000 & \\
• \hline \mathrm { Cr } & \text { Equipment } & & 88000 \\
• \hline & & & \\
• \hline \mathrm { Dr } & \text { Income tax expense } & 26400 & \\
• \hline \mathrm { Cr } & \text { Deferred tax asset } & & 26400 \\
• \hline & & & \\
• \hline \mathrm { Dr } & \text { Depreciation expense } & 12500 & \\
• \hline \mathrm { Cr } & \text { Accumulated depreciation } & & 12500 \\
• \hline & & & \\
• \hline \mathrm { Dr } & \text { Income tax expense } & 3750 & \\
• \hline \mathrm { Cr } & \text { Deferred tax asset } & & 3750 \\
• \hline
• \end{array}\]

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Definitions:

Esophagus

The muscular tube that moves food from the throat to the stomach.

Sphincter

A ring-like muscle that controls the passage of substances through an opening in the body, such as the anus or esophagus.

Peristalsis

The series of wave-like muscle contractions that moves food through the digestive tract.

Latissimus Dorsi

The large muscle of the back.