Singh Ltd Is a Wholly Owned Subsidiary of Ross Co

question 15

Multiple Choice

Singh Ltd. is a wholly owned subsidiary of Ross Co. At the beginning of 20X4, Ross acquired a machine for $350,000 and sold it to Singh for $437,500. The machine will be depreciated over five years using the straight-line method with no residual value.
-In preparing the consolidated financial statements for the second year after the sale to Singh, Ross made the following journal entry: $$\begin{array} { | c | c | } \hline \text { DR Accumulated depreciation-machine } & 17,500 \\\hline \text { CR Depreciation expense-machine } & 17,500 \\\hline\end{array}$$ What other adjustment must be made in preparing the consolidated financial statements?

• A) \[\begin{array} { | c | c | }
• \hline \text { DR Opening retained earnings } & 37,500 \\
• \hline \text { CR Machine } & 87,500 \\
• \hline
• \end{array}\]
• B) \[\begin{array} { | l | l | }
• \hline \text { DR Opening retained earnings } & 70,000 \\
• \hline \text { DR Accumulated depreciation-machine } & 17,500 \\
• \hline \text { CR Machine } & 87,500 \\
• \hline
• \end{array}\]
• C) \[\begin{array} { | l | l | }
• \hline \text { DR Accumulated depreciation-machine } & 37,500 \\
• \hline \text { CR Machine } & 87,500 \\
• \hline
• \end{array}\]
• D) \[\begin{array} { | l | l | }
• \hline \text { DR Closing retained earnings } & 70,000 \\
• \hline \text { DR Depreciation expense } & 17,500 \\
• \hline \text { CR Machine } & 87,500 \\
• \hline
• \end{array}\]

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Definitions:

Depreciation

Depreciation is the systematic allocation of the cost of a tangible asset over its useful life to reflect its decrease in value due to wear and tear, age, or obsolescence.

Depreciable Cost

The total cost of a tangible fixed asset that is subject to depreciation over its useful life, including purchase price, installation charges, and other costs necessary to bring the asset into usable condition.

Straight-Line Method

A method of calculating depreciation in which an asset's cost is divided evenly over its estimated useful life.

Salvage Value

An asset's predicted market price upon exhausting its useful life.