Fox Owns 60% of the Outstanding Common Shares of Sox

question 14

Multiple Choice

Fox owns 60% of the outstanding common shares of Sox and uses the cost method to account for its investment.On January 1,20X4,Fox sold a machine to Sox for $300,000.The equipment had a net book value of $150,000 and a remaining useful life of 5 years at the time of the intercompany sale.Both companies record a full year of amortization expense in the year of purchase and no amortization in the year of sale.The net book value of the equipment on the separate-entity financial statements of Fox and Sox at December 31,20X6 were $1,000,000 and $600,000,respectively.Ignoring income taxes,what is the net effect of these transactions and related amortization on consolidated retained earnings as of December 31,2008?

• A)$0
• B)$15,000
• C)$30,000
• D)$150,000

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