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:

Debtor

A party that has incurred a debt by borrowing money or obtaining goods or services on credit.

Debt

An amount of money borrowed by one party from another, typically involving repayment with interest.

Mechanic's Lien

A legal claim against a property for unpaid construction work or supplies, giving the claimant a right to secure payment.

Personal Property

Movable assets owned by an individual or entity, as opposed to real property like land or buildings.