Q1. Pepe, Incorporated acquired 60% of Devin company on January 1, 2009. On that date Devin sold equipment to Pepe for $45,000. The equipment had a cost of $120,000 and accumulated depreciation of $66,000 with a remaining life of 9 years. Devin reported net income of $300,000 and $325,000 for 2009 and 2010, respectively. Pepe uses the equity method to account for its investment in Devin. What is the consolidated gain or loss on equipment for 2009?
a. $0
b. $9,000 gain
c. $9,000 loss
d. $21,000 gain
e. $21,000 loss
Q2. On January 1, 2009, Smeder Company, an 980% 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 2009 and 2010, respectively. Compute Collins' share of Smeder's net income for 2009.
a. $12,400
b. $14,400
c. $11,200
d. $12,800
Q3. On January 1, 2009, 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 432,000 for 2009 and 2010, respectively. For consolidation purposes, what net debit or credit will be made in 2009 relating to the equipment transfer?
a. Debit accumulated depreciation, $46,000
b. Debit accumulated depreciation, $48,000
c. Credit accumulated depreciation, $48,000
d. Credit accumulated depreciation, $46,000