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

question 44

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.
What is the net effect on consolidated net income in 2012 due to the equipment transfer?

• A) Increase $2,000.
• B) Decrease $12,000.
• C) Decrease $10,000.
• D) Decrease $14,000.
• E) Increase $10,000.

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Definitions:

Liabilities

Obligations or debts that a company owes to others, typically the sums of money due to creditors, suppliers, or tax departments.

Acquisition Value

The total cost incurred to acquire an asset, including the purchase price and all other expenses directly tied to the acquisition process.

Certified Public Accountant

A designation given to accounting professionals in numerous countries around the globe, indicating they have passed a licensure examination and met statutory and licensing requirements.

Management

The process of directing and controlling a group of individuals or an organization to reach a goal.