Zeus Ltd Owns 100% of the Issued Capital of Ares

question 7

Multiple Choice

Zeus Ltd owns 100% of the issued capital of Ares Ltd.On 1 July 2012,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 2012 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 2014?

• A)
• \[\begin{array} { | c | l | r | r | }
• \hline \mathrm { Dr } & \text { Opening retained earnings } & 88000 & \\
• \hline \mathrm { Cr } & \text { Equipment } & & 88000 \\
• \hline & & & \\
• \hline \mathrm { Dr } & \text { Accumulated depreciation } & 22000 & \\
• \hline \mathrm { Cr } & \text { Depreciation expense } & & 22000 \\
• \hline & & & \\
• \hline \mathrm { Dr } & \text { Income tax expense } & 6600 & \\
• \hline \mathrm { Cr } & \text { Deferred tax asset } & & 6600 \\
• \hline
• \end{array}\]
• B)
• \[\begin{array} { | c | l | r | r | }
• \hline \mathrm { Dr } & \text { Equipment } & 88000 & \\
• \hline \mathrm { Cr } & \text { Opening retained earnings } & & 88000 \\
• \hline & & & \\
• \hline \mathrm { Dr } & \text { Accumulated depreciation } & 25000 & \\
• \hline \mathrm { Cr } & \text { Opening retained earnings } & & 12500 \\
• \hline \mathrm { Cr } & \text { Depreciation expense } & & 12500 \\
• \hline & & & \\
• \hline \mathrm { Dr } & \text { Deferred tax asset } & 3300 & \\
• \hline \mathrm { Dr } & \text { Income tax expense } & 3300 & \\
• \hline \mathrm { Cr } & \text { Opening retained earnings } & & 6600 \\
• \hline
• \end{array}\]
• C)
• \[\begin{array} { | c | l | r | r | }
• \hline \mathrm { Dr } & \text { Opening retained earnings } & 61600 & \\
• \hline \mathrm { Dr } & \text { Deferred tax asset } & 26400 & \\
• \hline \mathrm { Dr } & \text { Equipment } & 90000 & \\
• \hline \mathrm { Cr } & \text { Accumulated depreciation—equipment } & & 178000 \\
• \hline & & & \\
• \hline \mathrm { Dr } & \text { Accumulated depreciation } & 22000 & \\
• \hline \mathrm { Cr } & \text { Opening retained earnings } & & 11000 \\
• \hline \mathrm { Cr } & \text { Depreciation expense } & & 11000 \\
• \hline & & & \\
• \hline \mathrm { Dr } & \text { Opening retained earnings } & 3300 & \\
• \hline \mathrm { Dr } & \text { Income tax expense } & 3300 & \\
• \hline \mathrm { Cr } & \text { Deferred tax asset } & & 6600 \\
• \hline
• \end{array}\]
• D)
• \[\begin{array} { | c | l | r | r | }
• \hline \mathrm { Dr } & \text { Opening retained earnings } & 61600 & \\
• \hline \mathrm { Dr } & \text { Deferred tax asset } & 26400 & \\
• \hline \mathrm { Cr } & \text { Equipment } & & 88000 \\
• \hline\\
• \hline \mathrm { Dr } & \text { Accumulated depreciation } & 22000 & \\
• \hline \mathrm { Cr } & \text { Depreciation expense } & &22000 \\
• \hline & & & \\
• \hline \mathrm { Dr } & \text { Opening retained earnings } & 3300 & \\
• \hline \mathrm { Dr } & \text { Income tax expense } & 3300 & \\
• \hline \mathrm { Cr } & \text { Deferred tax asset } & & 6600 \\
• \hline
• \end{array}\]

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Definitions:

REBT

Rational Emotive Behavior Therapy, a form of psychotherapy that focuses on identifying and changing irrational beliefs that cause emotional distress.

Irrational Mistake

An error in thinking or belief that is not based on logic or rational judgment.

REBT Homework

Assignments given to clients in Rational Emotive Behavior Therapy (REBT) intended to help them practice cognitive, emotional, and behavioral skills outside of therapy sessions.

Empathize

The ability to understand and share the feelings of another person from their perspective.