On January 1, 2010, Smeder Company, an 80% Owned Subsidiary

question 125

Multiple Choice

On January 1, 2010, 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 2010 and 2011, 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 2010 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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