Dalton Corp

question 55

Multiple Choice

Dalton Corp. owned 70% of the outstanding common stock of Shrugs Inc. On January 1, 2009, Dalton acquired a building with a ten-year life for $420,000. No salvage value was anticipated and the building was to be depreciated on the straight-line basis. On January 1, 2011, Dalton sold this building to Shrugs for $392,000. At that time, the building had a remaining life of eight years but still no expected salvage value. In preparing financial statements for 2011, how does this transfer affect the calculation of Dalton's share of consolidated net income?

• A) Consolidated net income must be reduced by $44,800.
• B) Consolidated net income must be reduced by $50,400.
• C) Consolidated net income must be reduced by $49,000.
• D) Consolidated net income must be reduced by $56,000.
• E) Consolidated net income must be reduced by $34,300.

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Definitions:

Contribution Margin

The amount by which a product's sales price exceeds its variable costs, used to cover fixed costs and to generate profit.

Break-Even Point

The point at which total costs and total revenue are equal, resulting in no net loss or gain for a business.

Net Loss

A financial situation that occurs when a company's total expenses exceed its revenues, indicating a negative profit.

Variable Costs

Costs that change in proportion to the level of activity or volume, such as raw materials and direct labor.