Porter Corporation Acquired 70% of the Outstanding Voting Common Stock

question 46

Essay

Porter Corporation acquired 70% of the outstanding voting common stock of Sherman Inc.in 2008.On January 1,2009,Sherman Inc.purchased a depreciable machine for $120,000 cash with an estimated useful life of 10 years that was depreciated on a straight-line basis.The machine has no estimated salvage value.Sherman used the machine until the end of 2011.On January 2,2012,Sherman sold the machine to Porter who continued to use the same estimated life (seven years remaining),salvage value and depreciation method that was used by Sherman.At the end of 2012,Sherman reported a gain on sale of the machine of $14,000.
Required:
Answer the following questions concerning Porter and Sherman.
1.Prepare elimination/adjusting entries for the consolidated working papers for the year ended December 31,2012.
2.How much depreciation expense relating to the transferred asset did Porter record in 2012 on the company's separate books?
3.How much depreciation expense relating to the transferred asset was reported on the consolidated income statement in 2012?
4.What amounts were reported for the Machine and the Accumulated Depreciation in the consolidated balance sheet on December 31,2012?

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Definitions:

U.S. Attorney

Officials responsible for prosecuting violations of federal law and representing the United States government in court.

Reorganization Plan

A process in bankruptcy proceedings where a company restructures its business operations, debts, and assets to allow it to continue its operations.

Feasible

A term that denotes something that is practical, possible, and capable of being accomplished.

Fraudulent Transfer

A transfer of assets with the intention to delay, defraud, or prevent creditors from reaching the assets to satisfy a debt.