On January 1, 2012, Smeder Company, an 80% Owned Subsidiary

question 97

Multiple Choice

On January 1, 2012, Smeder Company, an 80% owned subsidiary of Collins, Inc. transferred equipment with a 10-year life (six of which remain with no salvage value) to Collins in exchange for $84,000 cash. At the date of transfer, Smeder's records carried the equipment at a cost of $120,000 less accumulated depreciation of $48,000. Straight-line depreciation is used. Smeder reported net income of $28,000 and $32,000 for 2012 and 2013, respectively. All net income effects of the intra-entity transfer are attributed to the seller for consolidation purposes.
Compute Collins' share of Smeder's net income for 2012.

• A) $12,400.
• B) $14,400.
• C) $11,200.
• D) $12,800.
• E) $18,000.

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Definitions:

Strict Liability

A legal principle where a party is held responsible for damages or loss regardless of fault or intent, typically applied in cases involving inherently hazardous activities.

Foreseen Danger

A risk or hazard that was known or could have been anticipated prior to an event.

Poisonous Snake

A snake species that has venom which is harmful or fatal to humans and other animals upon biting.

Confinement

The state of being restricted or limited within certain boundaries.