On January 2,2014,Paogo Company Sold a Truck with Book Value

question 7

Multiple Choice

On January 2,2014,Paogo Company sold a truck with book value of $15,000 to Sanall Corporation,its wholly-owned subsidiary,for $20,000.The truck had a remaining useful life of five years with zero salvage value.Both firms use the straight-line depreciation method.If Paogo failed to make year-end adjustments/eliminations on the consolidated working papers in 2014,consolidated depreciation expense for 2014 would be

• A)$5,000 too high.
• B)$5,000 too low.
• C)$1,000 too low.
• D)$1,000 too high.

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Definitions:

Obsolete

Referring to a product, service, or technology that has become out of date or no longer in use.

Free Cash Flow

The amount of cash a company generates after accounting for cash outflows to support operations and maintain its capital assets.

Operating Activities

The day-to-day actions that are involved in running a business and generating revenue, including production, sales, and service delivery.

Existing Capacity

The current maximum output or production level that a facility or factory can achieve using its available resources.