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Problem:

ABC owns 100% of the outstanding shares of DEF Co. On January 1, Year One, ABC transfers a building to DEF for its fair value of $500,000. At that date, ABC was reporting this building at a net book value of $400,000 with no residual value and a remaining life of twenty years.

Required:

Question: In taking the individual records of these two companies at the end of Year One and turning them into consolidated statements, what is the impact on net consolidated income created by this transfer?

A. There is no impact when consolidated net income is computed.

B. A reduction of $95,000 is made to arrive at consolidated net income.

C. A reduction of $72,000 is made to arrive at consolidated net income.

D. A reduction of $48,000 is made to arrive at consolidated net income.

Note: Please show the work not just the answer.

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M91163851

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